EXHIBIT 2.1
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
CMS OIL AND GAS COMPANY, AS SELLER
AND
QUICKSILVER RESOURCES INC, AS PURCHASER
EFFECTIVE JANUARY 1, 2000
MICHIGAN PROPERTIES
TABLE OF CONTENTS
RECITALS..................................................................... 1
ARTICLE I - SALE AND PURCHASE................................................ 1
1.1. Description of Assets................................................ 1
1.2 Excluded Assets...................................................... 4
1.3 Effective Date and Transfer.......................................... 5
ARTICLE II - DEFINITIONS..................................................... 5
ARTICLE III - PURCHASE PRICE................................................. 9
3.1 Purchase Price....................................................... 9
3.2 Net Cash Payment to CMS.............................................. 9
3.3 Adjustments to Purchase Price........................................ 10
3.4 Payment of Adjusted Purchase......................................... 12
3.5 Over and Under Production............................................ 13
3.6 Purchase Price Allocation............................................ 14
ARTICLE IV - REPRESENTATIONS OF CMS.......................................... 14
4.1 Existence............................................................ 14
4.2 Authorization........................................................ 14
4.3 Brokers.............................................................. 15
4.4 Noncontravention..................................................... 15
4.5 Terra Shares......................................................... 15
4.6 Legal Compliance..................................................... 15
4.7 Excluded Assets...................................................... 15
4.8 Environmental, Health and Safety Matters............................. 16
4.9 Litigation........................................................... 16
4.10 Compliance With Contracts............................................ 16
4.11 Tax Matters.......................................................... 17
4.12 Compliance With Permits and Licenses................................. 18
4.13 Title................................................................ 19
4.14 Consents, Approvals and Rights to Acquire............................ 19
4.15 Gas Contracts........................................................ 19
4.16 Securities Disclosure/Representation................................. 19
ARTICLE V - REPRESENTATIONS OF PURCHASER..................................... 20
5.1 Existence............................................................ 20
5.2 Execution............................................................ 20
5.3 Authorization........................................................ 20
5.4 Brokers.............................................................. 20
5.5 Noncontravention..................................................... 21
5.6 Independent Evaluation and Title Review.............................. 21
5.7 Securities Disclosure/Representation................................. 21
5.8 Bonds and Permits.................................................... 22
5.9 Section 29 Tax Credits............................................... 22
ARTICLE VI - REPRESENTATIONS CONCERNING TERRA................................ 22
6.1 Organization, Qualification and Corporate Power...................... 22
6.2 Capitalization....................................................... 23
6.3 Noncontravention..................................................... 23
6.4 Subsidiaries and Affiliates.......................................... 24
6.5 Financial Statements................................................. 24
6.6 Events Subsequent to Most Recent Fiscal Month End.................... 25
6.7 Legal Compliance..................................................... 25
6.8 Tax Matters.......................................................... 25
6.9 Powers of Attorney................................................... 29
6.10 Litigation........................................................... 29
6.11 Employees and Employee Benefits...................................... 29
6.12 Environmental, Health and Safety Matters............................. 30
6.13 No Guaranties; Extension of Credit................................... 30
6.14 Permits.............................................................. 30
6.15 Compliance With Contracts............................................ 31
6.16 Title................................................................ 31
6.17 Consents, Approvals and Rights to Acquire............................ 31
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6.18 Gas Contracts........................................................ 31
6.19 Material Contracts................................................... 32
6.20 Disclaimer of All Other Representations and Warranties............... 33
ARTICLE VII - OPERATIONS AND CASUALTY LOSS................................... 33
7.1 Revenues and Expenses................................................ 33
7.2 Operations and Loss of Assets and Terra Assets....................... 33
ARTICLE VIII - PRE-CLOSING OBLIGATIONS OF CMS................................ 36
8.1 Encumbrances......................................................... 36
8.2 Approvals/Consents................................................... 36
8.3 Notices and Consents................................................. 37
8.4 Operation of Business................................................ 37
8.5 Full Access.......................................................... 37
8.6 Notice of Developments............................................... 38
ARTICLE IX - PRE-CLOSING OBLIGATIONS OF PURCHASER............................ 38
9.1 Approvals/Consents................................................... 38
9.2 Bonds and Permits.................................................... 39
9.3 Corporate Documentation.............................................. 39
9.4 Notices and Consents................................................. 40
9.5 Notice of Developments............................................... 40
9.6 Notice of Misrepresentation or Breach of Warranty.................... 40
ARTICLE X - CMS'S CONDITIONS OF CLOSING...................................... 40
10.1 Representations...................................................... 41
10.2 Performance.......................................................... 41
10.3 Pending Matters...................................................... 41
10.4 Waiting Periods...................................................... 41
10.5 Opinion of Counsel................................................... 41
10.6 Payment of Purchase Price or Adjusted Purchase Price................. 41
ARTICLE XI - PURCHASER'S CONDITIONS OF CLOSING............................... 41
11.1 Representations...................................................... 42
11.2 Performance.......................................................... 42
11.3 Pending Matters...................................................... 42
11.4 Waiting Periods...................................................... 42
11.5 Opinion of Counsel................................................... 42
ARTICLE XII - ENVIRONMENTAL CONDITION........................................ 42
12.1 Existing Condition................................................... 42
12.2 Environmental Assessment and Access.................................. 43
12.3 Release and Indemnity for Environmental Conditions................... 44
12.4 Confidentiality, Release and Indemnity For Environmental Assessment.. 45
12.5 Insurance for Environmental Assessment............................... 46
12.6 Indemnity Regarding Access........................................... 46
ARTICLE XIII - TITLE EXAMINATION............................................. 47
13.1 Title Examination Period............................................. 47
13.2 Cure of Title........................................................ 47
13.3 Title Adjustments.................................................... 48
13.4 Value of Title Adjustments........................................... 49
13.5 Limits on Title Adjustments.......................................... 50
13.6 Definition of Defensible Title....................................... 50
13.7 Definition of Permitted Encumbrances................................. 50
13.8 Definition of Title Defect........................................... 52
13.9 Back-In Interest Adjustments......................................... 53
13.10 Representations, Warranties or Covenants, and Indemnity.............. 54
13.11 Arbitration.......................................................... 55
ARTICLE XIV - RETAINED LIABILITIES........................................... 55
ARTICLE XV - CLOSING......................................................... 56
15.1. Time and Place of Closing............................................ 56
15.2 Closing Obligations.................................................. 56
15.3 Suspended Accounts................................................... 58
15.4 Termination of Guarantees and Other Commitments...................... 59
ARTICLE XVI - CONTINUING OBLIGATIONS......................................... 59
16.1 Post-Closing Reconciliation.......................................... 59
16.2 Receipts and Credits................................................. 59
16.3 Assumption of Obligations and Indemnities............................ 61
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16.4 Recording............................................................ 63
16.5 State of Michigan Oil and Gas Leases................................. 63
16.6 Further Assurances................................................... 64
16.7 Records.............................................................. 64
16.8 Access to Records.................................................... 64
16.9 Litigation Support................................................... 65
16.10 CMS Employees........................................................ 65
16.11 Transition........................................................... 65
16.12 Plan B............................................................... 66
ARTICLE XVII - TERMINATION................................................... 66
17.1 Right of Termination................................................. 66
17.2 Liabilities Upon Termination or Failure to Close..................... 68
17.3 Deposit.............................................................. 68
17.4 Effect of Termination................................................ 69
ARTICLE XVIII - REMEDIES FOR BREACHES OF THIS AGREEMENT...................... 69
18.1 Survival of Representations and Warranties........................... 69
18.2 Indemnification Provisions for Benefit of the Purchaser.............. 69
18.3 Indemnification Provisions for Benefit of CMS........................ 70
18.4 Matters Involving Third Parties...................................... 71
18.5 Determination of Adverse Consequences................................ 71
18.6 Exclusive Remedy..................................................... 72
ARTICLE XIX - TAXES.......................................................... 72
19.1 Liability for Taxes.................................................. 72
19.2 Tax Returns.......................................................... 73
19.3 Contest Provisions................................................... 73
19.4 Assistance and Cooperation........................................... 74
19.5 Adjustment to Purchase Price For Taxes............................... 75
19.6 Treatment of the Terra Shares........................................ 75
19.7 CMS Tax Allocation Agreement......................................... 75
19.8 Books and Records.................................................... 75
19.9 Sales Taxes.......................................................... 75
19.10 Other Taxes.......................................................... 76
ARTICLE XX - EXERCISE OF PREFERENTIAL PURCHASE RIGHTS........................ 76
ARTICLE XXI - INDEPENDENT INVESTIGATION AND DISCLAIMER....................... 77
21.1 Disclaimer as to Warranties.......................................... 77
21.2 Disclaimer As To Year 2000 Compliance................................ 78
ARTICLE XXII - MISCELLANEOUS................................................. 78
22.1 Like-Kind Exchange................................................... 79
22.2 Governing Law........................................................ 79
22.3 Entire Agreement..................................................... 79
22.4 Amendments and Waivers............................................... 79
22.5 Captions............................................................. 79
22.6 Assignment........................................................... 79
22.7 Notices.............................................................. 80
22.8 Expenses............................................................. 81
22.9 Severability......................................................... 81
22.10 Confidentiality, Publicity and Retention of Data..................... 81
22.11 Use of CMS's Name.................................................... 82
22.12 Conditions........................................................... 82
22.13 No Third-Party Beneficiaries......................................... 82
22.14 Succession and Assignment............................................ 82
22.15 Construction......................................................... 82
22.16 Attachments.......................................................... 83
22.17 Counterparts......................................................... 83
22.18 Execution Deadline................................................... 83
ATTACHMENT A1
ATTACHMENT A2
ATTACHMENT A3
ATTACHMENT A4
ATTACHMENT A5
ATTACHMENT B1
ATTACHMENT B2
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ATTACHMENT B3
ATTACHMENT C
ATTACHMENT D
ATTACHMENT E
ATTACHMENT F
ATTACHMENT G
ATTACHMENT H
ATTACHMENT I
ATTACHMENT J
ATTACHMENT K
ATTACHMENT L
ATTACHMENT M
ATTACHMENT N
ATTACHMENT O
ATTACHMENT P
ATTACHMENT Q
ATTACHMENT R
ATTACHMENT S
ATTACHMENT T
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PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made as of the
4th day of March, 2000, by and between CMS OIL AND GAS COMPANY, a Michigan
corporation ("CMS"), whose address is 1021 Main Street, Suite 2800, Houston,
Texas 77002, and QUICKSILVER RESOURCES INC., a Delaware corporation
("Purchaser"), whose address is 1619 Pennsylvania Avenue, Fort Worth, Texas
76104. CMS and the Purchaser may hereinafter be referred to collectively as the
"Parties" and individually as a "Party".
RECITALS
WHEREAS, CMS desires to sell and Purchase desires to purchase the
Assets, as hereinafter defined, on the terms and conditions provided in this
Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged by both Parties, CMS and Purchaser hereby
agree as follows:
ARTICLE I - SALE AND PURCHASE
1.1. Description of Assets
At the Closing (as defined in Section 15.1, below), CMS shall sell and
Purchaser shall purchase, as hereinafter provided, as of the Effective Date, the
following assets (the "Assets"):
(a) All of CMS's right, title and interest in and to all of the issued and
outstanding capital stock of Terra Energy Ltd., a Michigan corporation
("Terra");
(b) All of CMS's and Terra's right, title and interest in and to the wells
and units described at Attachment A1, the oil and gas leases described
at Attachment A2, the overriding royalties described at Attachment A3
and the fee mineral, fee surface and real property interests and right
of ways described at Attachment A4, all of which Attachments are
attached hereto and made a part hereof and are hereinafter
collectively referred to as Attachment A (including, but not limited
to any working interest, leasehold rights, royalty interests,
overriding royalty interests and reversionary rights held as of the
Effective Date) but excepting, however, the Excluded Assets as defined
below;
(c) All of CMS's and Terra's corresponding right, title and interest in
and to all oil and gas wells, injection wells, disposal wells, water
wells, surface and downhole equipment, personal property, structures,
fixtures, flowlines, pipelines and pumps to the extent used or held
for use in connection with the exploration, development, operation or
maintenance of the assets described at Attachment A1, Attachment A2,
Attachment A3 and Attachment A4, including, but not limited to, the
gas plants, compressors, facilities, systems and pipelines described
at Attachment A5
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hereto, but excepting, however, the Excluded Assets as defined below;
(d) All of CMS's and Terra's corresponding right, title and interest in
easements, rights-of-way, permits, licenses, surface leases and use
agreements, servitudes and other surface rights appurtenant to the
assets, to the extent the same are assignable, and to the extent now
being used or held for use in connection with the exploration,
development, operation and maintenance of the assets, but excepting,
however, the Excluded Assets as defined below, (the interest of CMS in
all of the items listed in Section 1.1(b) and Section 1.1(c), above,
this Section 1.1(d), and at Attachment A, shall occasionally be
hereinafter collectively referred to as the "Subject Property");
(e) All of CMS's corresponding right, title and interest in and to and
under or derived from all presently existing and currently effective
unitization, pooling and communitization agreements, declarations and
orders (including, but not limited to, all units formed under orders,
regulations, rules or other official actions of any federal, state or
other governmental agency having jurisdiction) to which the Subject
Property (or any part thereof) are committed, and all privileges,
benefits and powers, appurtenant thereto;
(f) All of CMS's corresponding right, title and interest in all oil and
gas and other hydrocarbons produced from or (if unitized, pooled or
communitized with other leases or lands) allocable to the Subject
Property after the Effective Date;
(g) All of CMS's corresponding right, title and interest in and to or
derived from all presently existing and effective oil, natural gas and
gas liquid purchase, processing and sales contracts, (but specifically
excepting and excluding the Natural Gas Purchase Agreement effective
May 1, 1989, by and between Midland Cogeneration Venture Limited
Partnership and Northern Michigan Exploration Company and CMS Energy
Corporation), operating agreements, farmin or farmout agreements, and
other contracts (but not including any bonds held by CMS or its
parent, subsidiary or affiliate entities for CMS's benefit),
agreements and instruments to the extent directly related to the
Subject Property and the exploration or development of oil and gas (or
either of them) from or attributable to the Subject Property, only to
the extent the same are assignable, but excepting, however, the
Excluded Assets as defined below; and
(h) Subject to Section 16.7, originals, or in the sole discretion of CMS,
copies of the following files, records and data of CMS, to the extent
directly related to the Subject Property: lease files, well files,
unit files, division order files, lease contract files, geological
and geophysical data, legal files, and tax records and FERC filings
related to section 29 non-
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conventional fuels tax credits, and subject to Section 16.7 and
Section 19.8, all of the files, records and data of Terra. This
agreement by CMS to convey and deliver the aforementioned files,
records and data is granted by CMS to the extent that CMS or Terra has
authority to do so without violating any confidentiality obligation to
a third party, and is without warranty as to the accuracy or
completeness of the information delivered. Any other provision of this
Agreement to the contrary notwithstanding, CMS shall not provide
Purchaser with any files, records or data or access to any files,
records or data which (i) are not in the possession or control of CMS
or Terra, (ii) CMS considers to be privileged, proprietary or
confidential to it and which are not directly related to the
condition, quantity and quality of the Assets, (iii) CMS or Terra
cannot legally provide Purchaser because of third party restrictions
on CMS or Terra, or disclosure of which will violate any agreement to
which CMS or Terra is a party, (iv) are a part of or relate solely to
the Excluded Assets, or (v) relate exclusively to Retained Liabilities
(as defined below).
It is CMS's intent to sell to Purchaser, and it is Purchaser's intent to
purchase from CMS, all of CMS's right, title and interest in and to the
Assets, regardless of whether the Assets are incompletely or incorrectly
described on the Attachments hereto, but specifically excepting, however,
the Excluded Assets as defined below. In order to fully and completely
effectuate the intent of the Parties, CMS further agrees to assign and
convey, and Purchaser further agrees to accept and assume, at any time
whether at Closing or post-Closing, any and all assets, obligations and
liabilities of CMS related thereto, of CMS of the kind described in (a) -
(h), above, which are located in the state of Michigan, and which are not
included at Attachment A, saving and excepting the Excluded Assets.
The Parties further acknowledge that the references to "Terra", and its
right, title and interest in and to the assets referenced in Section
1.1(b), Section 1.1(c) and Section 1.1(d), above, are included in those
sections, and at Attachment A, for identification purposes only. For
purposes of this Agreement the right, title and interest of Terra in and
to these assets shall not be deemed to be Assets, except insofar as
ownership of these items follows the ownership of all of the outstanding
capital stock of Terra as referenced in Section 1.1(a), above.
All of the right, title and interest of Terra in and to all assets
described at Attachment A, shall cumulatively hereinafter be referred to
as the "Terra Property". The Terra Property, as well as Terra's
corresponding right, title and interest (i) in and to and under or
derived from all presently existing or currently effective unitization,
pooling and communitization agreements, declarations and orders
(including, but not limited to, all units formed under orders,
regulations, rules or
3
other official actions of any federal, state or other governmental agency
having jurisdiction) to which the Terra Assets (or any part thereof) are
committed and all privileges, benefits and powers appurtenant thereto,
(ii) in all oil and gas and other hydrocarbons produced from or (if
unitized, pooled or communitized with other leases or lands) allocable to
the Terra Property, after the Effective Date, (iii) in all presently
existing and effective oil, natural gas and gas liquid purchase,
processing and sales contracts, operating agreements, farmin or farmout
agreements and other contracts, agreements and instruments directly
related to the Terra Property, and the exploration or development of oil
and gas (or either of them) from or attributable to the Terra Property,
above, and (iv) subject to Section 16.7 and Section 19.8, and further
subject to the limitations set forth in Section 1.1(h), above, in all
lease files, well files, unit files, lease contract files, geophysical
data, financial records, corporate records, legal files, computer
programs, general tax records, samples, test data or any other records,
samples, information, data or documents of Terra, but excepting, however,
the Excluded Assets as defined below, shall cumulatively hereinafter be
referred to as the "Terra Assets".
Purchaser shall accept and assume all burdens and liabilities past,
present and future with respect to the Assets and the Terra Assets,
excepting, however, the Retained Liabilities, as defined and identified
below.
The Parties acknowledge that certain of the Assets and the Terra Assets
may be subject to third party preferential rights to purchase, rights of
reconveyance, consents to sell or assign or confidentiality agreements,
and nothing in this Section 1.1 shall be deemed to constitute a
representation or warranty that the Assets or the Terra Assets are free
and clear of any preferential rights, rights of reconveyance, consents or
confidentiality agreements.
1.2 Excluded Assets
This Agreement does not cover, and any instrument of conveyance or
assignment made pursuant to Section 15.2, below, of this Agreement shall except
and exclude the Excluded Assets. Excluded Assets shall include: (i) the items
that are described at Attachment B1, (ii) the real property, building and
appurtenances commonly known as, and located at 1475 Terra Road, Traverse City,
Michigan as described at Attachment B2, and all fixtures and personal property
located thereon which is not specifically covered in Section 1.1, above, (iii)
the wells, units and leases described at Attachment B3 and all Assets or Terra
Assets insofar as they are used or held for use in connection therewith, (iv)
the Natural Gas Purchase Agreement (effective May 1, 1989) between Midland
Cogeneration Venture Limited Partnership and Northern Michigan Exploration
Company and CMS Energy Corporation and (v) Terra's interest in Thunder Bay
Pipeline Co., LLC. The term Excluded Assets shall also be deemed to include all
items of property, including but not limited to
4
vehicles, tools, machines, warehouse stock, equipment, materials, pipelines,
fixtures, facilities and interests which are leased by CMS, or as to which CMS
has only a license or other right of use, and any items of property, including
but not limited to vehicles, tools, machines, warehouse stock, equipment,
materials, pipelines, fixtures, facilities and interests which are owned by
third parties, such as employees, contractors or agents, even if such items of
property are used or held for use in connection with the Assets or the Terra
Assets.
1.3 Effective Date and Transfer
For the purposes of this Agreement, the phrase "Effective Date" shall mean
7:00 o'clock, A.M. local time (where the Assets and the Terra Assets are
located) on January 1, 2000. Unless otherwise provided within this Agreement for
a specific property(s), the phrase "Transfer Date" shall mean 7:00 o'clock A.M.
local time on the next ensuing day after Closing. On the Transfer Date CMS,
subject to Section 7.2, Section 13.10, and Section 15.2(k) hereof, shall
transfer to Purchaser, and Purchaser shall accept the physical, possession,
control, responsibility and, subject to Section 7.2, operations of the portions
of the Assets and the Terra Assets which are operated by CMS or Terra. Nothing
contained in this Section 1.3, or in this Agreement generally, shall be deemed
to be a representation or warranty of CMS that Purchaser is entitled to, nor
that Purchaser will succeed CMS or Terra as operator, nor that Terra shall be
entitled to remain as operator of all or any portion of the Subject Property or
the Terra Property now operated by CMS or Terra.
ARTICLE II - DEFINITIONS
2.1 "Accredited Investor" has the meaning set forth in Regulation D promulgated
-------------------
under the Securities Act.
2.2 "Adverse Consequences" means all actions, suits, proceedings, hearings,
--------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, reasonable
amounts paid in settlement, liabilities, obligations, taxes, liens, losses,
expenses, and fees, including court costs and reasonable attorneys' fees and
expenses.
2.3 "Affiliate" or "Affiliates" means any entity, including any corporation or
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limited liability company with respect to which a specified Person owns less
than a majority of the common stock or less than a majority of the ownership
interest of the entity.
2.4 "Assets" has the meaning set forth in Section 1.1, above.
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2.5 "CMS Disclosure Schedule" has the meaning set forth in Article IV, below.
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2.6 "Cash" means cash and cash equivalents (including marketable securities and
----
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Statements.
5
2.7 "Claim of Title Defect" has the meaning set forth in Section 13.1, below.
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2.8 "Claims" means, with respect to the agreement of any Party to defend,
------
indemnify and hold harmless another Party, any and all claims, suits, causes of
action, demands, liabilities, judgments, fines, penalties, damages, losses,
expenses or costs, including without limitation court costs and legal and
accounting fees and expenses, arising out of, in respect of or in any manner
related to the subject of such agreement.
2.9 "Closing" has the meaning set forth in Section 15.1, below.
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2.10 "Closing Date" has the meaning set forth in Section 15.1, below.
------------
2.11 "Closing Statement" has the meaning set forth in Section 15.2(e), below.
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2.12 "Code" means the Internal Revenue Code of 1986, as amended.
----
2.13 "Confidential Information" means any information concerning the businesses
------------------------
and affairs of CMS and Terra, and their Subsidiaries and Affiliates that is not
already generally available to the public.
2.14 "Defensible Title" has the meaning set forth in Section 13.6, below.
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2.15 "Effective Date" has the meaning set forth in Section 1.3, above.
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2.16 "Employee Benefit Plan" means any (a) nonqualified deferred compensation or
---------------------
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other retirement, bonus, or incentive plan or
program.
2.17 "Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3
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(2).
2.18 "Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3
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(1).
2.19 "Environmental Assessment" has the meaning set forth in Section 12.2,
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below.
2.20 "Environmental, Health, and Safety Requirements" shall mean all federal,
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state and local statutes, regulations, and ordinances concerning public health
and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of
6
any hazardous materials, substances or wastes, as such requirements are enacted
and in effect on or prior to the Effective Date.
2.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
2.22 "Excluded Assets" has the meaning set forth in Section 1.2, above.
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2.23 "Extended Due Diligence Period" has the meaning set forth in Section 13.1,
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below.
2.24 "Financial Statements" has the meaning set forth in Section 6.5, below.
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2.25 "GAAP" means United States generally accepted accounting principles as in
----
effect from time to time.
2.26 "Income Tax" means any federal, state or local income tax, including any
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interest, penalty, or addition thereto, whether disputed or not.
2.27 "Income Tax Return" means any return, declaration, report, claim for
-----------------
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
2.28 "Indemnified Party" has the meaning set forth in Section 18.4(a), below.
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2.29 "Indemnifying Party" has the meaning set forth in Section 18.4(a), below.
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2.30 "Interim Period" has the meaning set forth in Section 3.3(b), below.
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2.31 "Knowledge" means actual knowledge without independent investigation; and
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when used in connection with CMS or Terra shall mean actual knowledge of an
officer of CMS without independent investigation.
2.32 "Most Recent Financial Statements" has the meaning set forth in Section
--------------------------------
6.5, below.
2.33 "Most Recent Fiscal Month End" has the meaning set forth in Section 6.5,
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below.
2.34 "Multiemployer Plan" has the meaning set forth in ERISA (S)3 (37).
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2.35 "Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
2.36 "Over and Under Production" has the meaning set forth in Section 3.5,
-------------------------
below.
2.37 "Party" or "Parties" has the meaning set forth in the preface above.
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2.38 "Permits" has the meaning set forth in Section 6.14, below.
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2.39 "Person" means an individual, a partnership, a corporation, a limited
------
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
2.40 "Purchase Price" has the meaning set forth in Section 3.1, below.
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2.41 "Qualifying Wells" means those wells whose production qualifies for the
----------------
credit for producing fuel from nonconventional sources under section 29 of the
Code. The CMS and Terra Qualifying Wells are listed at Attachment C.
2.42 "QRI Stock" has the meaning set forth in Section 3.4(a), below.
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2.43 "Retained Liabilities" means those liabilities relating to the Assets or
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the Terra Assets, which arise out of events which occurred prior to the
Effective Date and as to which CMS expressly agrees to retain all liability or
to indemnify Purchaser as to all liability. All Retained Liabilities are
identified at Attachment D to this Agreement.
2.44 "Securities Act" means the Securities Act of 1933, as amended.
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2.45 "Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
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or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
2.46 "Subject Property" has the meaning set forth in Section 1.1(d), above.
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2.47 "Subsidiary" or "Subsidiaries" means any entity, including any corporation
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or limited liability company with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the common stock or has the power to vote
or direct the voting of sufficient securities or ownership interest in the
entity to elect or appoint a majority of the directors, or managers.
2.48 "Tax" (and, with correlative meaning, "Taxes" and "Taxable") shall mean (i)
--- ----- -------
any federal, state or local net income, gross income, single business tax, gross
receipts, windfall profits, severance, property, production sales, use, value
added, license, excise, franchise, employment, payroll, withholding, alternative
or add-on minimum, ad valorem, transfer, excise, stamp, or environmental tax, or
any other tax, custom, duty, governmental fee or import or export duty or other
like assessment or charge of any kind whatsoever, together with any
8
interest or penalty, addition to tax or additional amount imposed by any
governmental authority, and (ii) liability of CMS, Terra or its Subsidiaries for
the payment of amounts with respect to payments of a type described in clause
(i) as a result of being a member of an affiliated, consolidated, combined or
unitary group, or as a result of any obligation of CMS, Terra or its
Subsidiaries under any tax sharing arrangement or Tax indemnity arrangement.
2.49 "Tax Return" shall mean any return, report or similar statement required to
----------
be filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
2.50 "Terra Assets" has the meaning set forth in Section 1.1, above.
------------
2.51 "Terra Disclosure Schedule" has the meaning set forth in Article VI, below.
-------------------------
2.52 "Terra Property" has the meaning set forth in Section 1.1, above.
--------------
2.53 "Terra Shares" means all of the issued and outstanding shares of Common
------------
Stock of Terra.
2.54 "Third Party Claim" has the meaning set forth in Section 18.4(a), below.
-----------------
2.55 "Title Defect" has the meaning set forth in Section 13.8, below.
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2.56 "Transfer Date" has the meaning set forth in Section 1.3, above.
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ARTICLE III - PURCHASE PRICE
3.1 Purchase Price
CMS and Purchaser agree that on and subject to the terms of this Agreement,
the purchase price for the Assets shall be the sum of one hundred sixty-three
million seven hundred ten thousand six hundred twenty-five United States dollars
($163,710,625) (the "Purchase Price"), plus or minus the adjustments provided
for in Section 3.3,below.
3.2 Net Cash Payment to CMS
Immediately prior to the Closing, CMS will cause Terra to pay CMS an
aggregate amount (and may cause each Subsidiary and Affiliate of Terra to pay to
Terra any necessary component thereof) equal to the consolidated Cash of Terra
and its Subsidiaries and Affiliates as of the Closing Date. CMS may cause (i)
Terra to make any such payment to CMS in the form of a dividend or a redemption
and (ii) any Subsidiary or Affiliate of Terra to make any such payment to Terra
in the form of a dividend, a redemption, or an intercompany loan.
9
3.3 Adjustments to Purchase Price
The Purchase Price for the Assets shall be adjusted at Closing as follows
(the "Adjusted Purchase Price"):
(a) an adjustment will be made based on the difference between the average
bid and offer for a five (5) year term for wholesale natural gas
delivered to the Michigan City gate as quoted by Amerex, (the "five-
year strip price"), as of January 7, 2000 (being $2.625/MMBtu), and
the average five-year strip price for the five (5) business days
ending March 24, 2000 ("Average Five-Year Strip Price"). If the
Average Five-Year Strip Price is $2.70/MMBtu or less, or is
$2.55/MMBtu or more, then there shall be no adjustment to the Purchase
Price. If the Average Five-Year Strip Price is greater than
$2.70/MMBtu, or is less than $2.55/MMBtu, the Purchase Price shall be
ratably adjusted in proportion to the respective increase over
$2.70/MMBtu or decrease under $2.55/MMBtu against $2.625/MMBtu. By
way of example, if the Average Five-Year Strip Price is $2.75/MMBtu,
assuming a Purchase Price of $163,000,000, then the Purchase Price
would be approximately $166,000,000.00 ($2.675 divided by $2.625
multiplied by $163,000,000.00). If the Average Five-Year Strip Price
is $2.50/MMBtu, assuming a Purchase Price of $163,000,000, then the
Purchase Price would be approximately $159,900,000.00 ($2.575 divided
by $2.625 multiplied by $163,000,000.00). Notwithstanding the
foregoing, in no event shall the Purchase Price be adjusted by more
than $7,000,000 as a result of an increase or decrease in the Average
Five-Year Strip Price. The foregoing shall be the first adjustment
made to the Purchase Price;
(b) by adding the amount (based on CMS's good faith estimate) of all
expenditures made by CMS or Terra that are attributable to the Assets
transferred to Purchaser, and the Terra Assets, for the period between
the Effective Date and the Closing Date (the "Interim Period"),
including, without limitation, royalties, rentals, operating expenses,
overhead charges (which, except as expressly provided in this
Agreement, shall not exceed the overhead charges provided for in any
applicable operating agreement), all charges billed under operating
agreements (such as, but not limited to, CMS's and Terra's share of
overhead charges), and all prepaid expenses. All amounts so added to
the Purchase Price pursuant to this Section 3.3(b), shall be further
adjusted to reflect the actual amount of all such charges and
expenses, as part of, and in accordance with the post-closing
reconciliation provided for in Section 16.1, below;
(c) by adding the value of all merchantable oil in storage above the
pipeline connection at the Effective Date that is credited to the
Subject Property transferred to Purchaser and the Terra Property. The
value of such oil shall be the most current price received by CMS or
10
Terra as of the Effective Date, less taxes deducted by the purchaser
of oil, adjusted for BS&W, temperature and quality per the most
current sample measurement for the applicable storage tank, to the
extent not accounted for in Section 3.3(p), below;
(d) by adding the value of all gas produced for which the proceeds have
not been received, attributable to production from the Subject
Property and the Terra Property for all periods prior to the Effective
Date. The value of such gas shall be the most current price received
by CMS or Terra as of the Effective Date, less all third party costs
deducted by the transporter or purchaser of such gas, to the extent
not accounted for in Section 3.3(p), below;
(e) by adding the value of all receivables and all other net income of any
kind or nature (including but not limited to overhead charges)
attributable to the Terra Assets, relating to all periods prior to the
Effective Date, whether from or attributable to hydrocarbon
production, or otherwise, and regardless of when invoiced, collected
and received, to the extent not accounted for in Section 3.3(p),
below;
(f) by subtracting the amount of proceeds received by CMS or Terra that
are attributable to hydrocarbon production from the Subject Property
and the Terra Property after the Effective Date, net of any royalties,
overriding royalties and other payments out of production, and of any
production, severance or sales taxes, and all third party costs not
reimbursed to CMS or Terra by the transporter or purchaser of
production;
(g) by adding the value of all pre-paid royalties and severance tax
relating to production attributable to the Assets and the Terra
Assets, from and after the Effective Date;
(h) by subtracting an amount equal to the value of that portion of the
Subject Property and the Terra Property, determined pursuant to
Article XX ("Exercise of Preferential Purchase Rights") with respect
to which preferential purchase rights have been properly and timely
exercised by third parties;
(i) by adding the amount of accrued interest on the Deposit pursuant to
Section 3.4(a), below;
(j) an adjustment may also be made to the Purchase Price pursuant to
Section 3.5 ("Over and Under Production");
(k) an adjustment may also be made to the Purchase Price pursuant to
Article VII ("Operations and Casualty Loss");
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(l) an adjustment may also be made to the Purchase Price pursuant to
Section 12.2(d) ("Environmental Assessment and Access");
(m) an adjustment may also be made to the Purchase Price pursuant to
Article XIII ("Title Examination");
(n) an adjustment may also be made to the Purchase Price pursuant to
Section 18.5 ("Determination of Adverse Consequences");
(o) an adjustment may also be made to the Purchase Price pursuant to
Section 19.5 ("Adjustment to Purchase Price for Taxes"), to the extent
not accounted for in Section 3.3(q), below;
(p) an adjustment will be made to the Purchase Price to account for
Terra's consolidated net working capital as of the Effective Date,
determined in accordance with Attachment E;
(q) by subtracting the dollar amount which is the product of (i) the
amount of section 29 tax credit qualified gas (expressed in MMBtus)
that constitutes Assets or Terra Assets and which is produced within
the Interim Period; and (ii) the tax credit rate (expressed in dollars
per MMBtu), as adjusted by inflation for the year 2000 based upon the
same percentage increase in inflation for the calendar year 1999 as
determined by the Internal Revenue Service, all as provided for by
section 29 of the Code; and
(r) by adding or subtracting any other amounts mutually agreed upon in
writing by the Parties.
3.4 Payment of Adjusted Purchase
The Adjusted Purchase Price shall be paid as follows:
(a) Unless previously tendered, upon execution and return of this
Agreement to CMS, Purchaser shall contemporaneously tender to CMS an
earnest money performance deposit (the "Deposit"), consisting of: (i)
three million six hundred fifty thousand (3,650,000) fully non-
assessable shares of unregistered Quicksilver Resources Inc. common
stock, free and clear of any and all claims, liens and encumbrances of
any kind, whatsoever, newly and validly issued in the name of CMS
("QRI Stock"), valued at $4.00 per share, and (ii) the sum of one
million four hundred thousand dollars ($1,400,000.00) in United States
currency. Subject to receipt of the prior written consent of Joint
Energy Development Investments Limited Partnership, a Delaware limited
partnership ("JEDI"), as required by the terms of a Registration
Rights Agreement, dated as of April 9, 1998, between Purchaser and
JEDI, Purchaser and CMS shall enter into a Registration Rights
Agreement substantially in the form of Attachment F hereto pursuant to
which Purchaser shall agree to
12
register the QRI Stock on the terms and subject to the conditions set
forth therein. Purchaser agrees to use its commercially reasonable
best efforts to obtain the consent of JEDI referred to above as soon
as possible following the execution and return of this Agreement. At
Closing, CMS shall return the QRI Stock to Purchaser in exchange for
United States currency equal to fourteen million six hundred thousand
dollars ($14,600,000.00) in United States currency, plus interest
thereon at the rate of eight percent (8%) per annum computed from and
after February 15, 2000, to the Closing Date, and in no event shall
such interest be credited against the Purchase Price or the Adjusted
Purchase Price. In the event that the transaction contemplated by this
Agreement does not close, then and in that event the ultimate
disposition of the Deposit, and the terms and conditions thereof,
shall be governed by the provisions of Section 17.3, below;
(b) At Closing, Purchaser shall pay to CMS, by bank wire transfer in
United States currency either the Purchase Price or Adjusted Purchase
Price as reflected on the Closing Statement referenced in Section
15.2(e), to be mutually agreed upon at least one (1) business day
prior to the Closing Date, or failing such mutual agreement, the
Adjusted Purchase Price, in a manner specified by CMS prior to
Closing. In either event all further adjustments to the Purchase
Price will be reconciled in accordance with Section 16.1, below.
3.5 Over and Under Production
For purposes of this Agreement, the term "Over and Under Production" shall
mean as of the Effective Date the difference between the volume of produced gas
that CMS or Terra took from any portion of the Subject Property or the Terra
Property, and the volume of CMS's or Terra's gas entitlement for such Property
or Terra Property, and shall also include all gas plant and pipeline imbalances.
(a) CMS's current estimate of all Over and Under Production are set forth
at Attachment G hereto (as of the dates set forth therein).
(b) At Closing, CMS will furnish Purchaser with a statement showing the
most current estimate of the Over or Under Production as of the most
recent date available. From and after the Effective Date any and all
benefits, obligations and liabilities associated with Over and Under
Production shall accrue to and be the responsibility of Purchaser.
Purchaser shall assume CMS's and Terra's overproduced and
underproduced positions as of the Effective Date, including but not
limited to the responsibility for the payment of royalties and other
burdens, and all Taxes on the volume of such gas which CMS or Terra
took in excess of its entitlement and any obligation to balance,
whether in cash or in kind. The Section 3.3 Adjustments to the
Purchase Price, and/or the Section 16.1 Final
13
Settlement Statement shall include an adjustment for any Over and
Under Production existing as of the Effective Date. All production
imbalances shall be calculated employing a settlement price of $2.75
per Mcf. All plant and pipeline imbalances shall be calculated in
accordance with applicable contracts, or if there are no applicable
contracts, by the mutual agreement of the Parties.
(c) In the event CMS or Terra are overproduced as to any well(s) or
unit(s) located on or appurtenant to the Subject Property or the Terra
Property, Purchaser acknowledges and agrees that Purchaser's share of
production from any such overproduced well(s) or unit(s) acquired may
at some point be curtailed by an underproduced working interest
owner(s), or that Purchaser may be required to cash balance the amount
of overproduction. The Parties agree that CMS shall not be liable to
the Purchaser or any third party in the event curtailment or such cash
balancing occurs.
3.6 Purchase Price Allocation
Attached to this Agreement as Attachment H is a schedule setting forth the
agreed allocation of the Purchase Price among the portions of the Assets and the
Terra Assets.
ARTICLE IV - REPRESENTATIONS OF CMS
CMS represents and warrants to Purchaser that, except as set forth in the
CMS Disclosure Schedule delivered by CMS to Purchaser on the date hereof and
initialed by the Parties, a copy of which is attached hereto as Attachment I,
each of the statements and representations contained in this Article IV are
true, correct and complete as of the date of this Agreement, and will be true,
correct and complete as of the Closing Date.
4.1 Existence
CMS is incorporated under the business corporation statute of the State of
Michigan and is in good standing in the state.
4.2 Authorization
The execution, delivery and performance of this Agreement and the
transaction contemplated by it have been authorized by the requisite corporate
action on the part of CMS. This Agreement has been executed by a representative
of CMS empowered by CMS to execute this Agreement, and it has been delivered on
behalf of CMS. At Closing, all documents and instruments required to be executed
and delivered by CMS shall have been so executed and delivered. This Agreement
does, and the documents and instruments executed and delivered shall, constitute
legal, valid and binding obligations of CMS enforceable in accordance with their
terms, subject to effects of bankruptcy, insolvency, reorganization, moratorium
and similar laws in effect relating to the rights and remedies of creditors, as
well as to general principles of equity.
14
4.3 Brokers
CMS has not incurred any liability, contingent or otherwise, for broker's
or finder's fees or commissions relating to the transaction contemplated by this
Agreement for which Purchaser shall have any responsibility whatsoever.
4.4 Noncontravention
Neither the execution and the delivery of this Agreement, nor the
consummation of the transaction contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which CMS is subject or any provision of its charter or bylaws, or
(ii), except for the third party preferential rights to purchase, rights of
reconveyance, consents to sell or assign or confidentiality agreements, as
referenced in Article XX, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, any agreement, contract, lease,
license, instrument, or other arrangement to which CMS is a party or by which it
is bound or to which any of the Assets is subject. 4.5 Terra Shares CMS holds of
record and owns beneficially all of the Terra Shares, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), taxes, Security Interest, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. CMS is not a
party to any option, warrant, purchase right, or other contract or commitment
that could require CMS to sell, transfer, or otherwise dispose of any capital
stock of Terra (other than this Agreement). CMS is not a party to any voting
trust, proxy, or other agreement or understanding with respect to the voting of
any Terra Shares.
4.5 Terra Shares
CMS holds of record and owns beneficially all of the Terra Shares, free and
clear of any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), taxes, Security Interest, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands. CMS is not a party to any option, warrant, purchase right, or other
contract or commitment that could require CMS to sell, transfer, or otherwise
dispose of any capital stock of Terra (other than this Agreement). CMS is not a
party to any voting trust, proxy, or other agreement or understanding with
respect to the voting of any Terra Shares.
4.6 Legal Compliance
To the Knowledge of CMS, CMS has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings and charges thereunder) of federal, state and local governments
(and all agencies thereof) relating to or affecting the Subject Property, except
where the failure to comply would not have a material adverse effect upon the
affected Asset.
4.7 Excluded Assets
None of the gas reserves that constitute the Assets or the Terra
Assets will be, as of the Closing Date, dedicated to the Natural Gas Purchase
Agreement (effective May 1, 1989) between Midland Cogeneration Venture Limited
Partnership and Northern
15
Michigan Exploration Company and CMS Energy Corporation, as referenced in
Section 1.2.
4.8 Environmental, Health and Safety Matters
Except as set forth in Section 4.8 of the CMS Disclosure Schedule, CMS is
in compliance with all Environment, Health and Safety Requirements insofar as
the same pertain to the Assets, except where the failure to comply would not
have a material adverse effect upon the Assets, and except as set forth in
Section 4.8 of the Disclosure Schedule, neither CMS nor the Assets is the
subject of any order, ruling, proceeding, hearing or investigation, either
pending or overtly threatened relating to Environmental, Health and Safety
Requirements. Except as set forth in Section 4.8 of the CMS Disclosure Schedule,
CMS has not received any written notice, report or other information regarding
any actual or alleged material violation of any Environmental, Health and Safety
Requirements with respect to the Assets, and as of the Effective Date no
condition exists with respect to the Assets that could give rise to future
liability or obligations under the Environmental, Health and Safety
Requirements.
4.9 Litigation
Except as set forth in Section 4.9 of the CMS Disclosure Schedule, there is
no outstanding injunction, judgment, order, decree, ruling or charge which could
have a material adverse effect on the Assets, nor, except as set forth in
Section 4.9 of the CMS Disclosure Schedule, CMS a party to any action, suit,
proceeding, hearing or investigation, pending or overtly threatened, which
involves the Assets, or CMS's ownership or operation of the Assets.
4.10 Compliance With Contracts
CMS has performed all of its obligations under the terms of all contracts
and agreements pertaining to the Assets except where the failure to perform
would not have a material adverse effect upon the Assets, and CMS has not
received written notice from any party of an alleged default by CMS under the
terms of any contract or agreement, or that any contract or agreement is not
valid and enforceable in accordance with its terms insofar, and only insofar, as
same relate to the Assets. Anything to the contrary contained herein,
notwithstanding, this Section 4.10 does not, and shall not under any
circumstances be deemed to include or apply to matters constituting a Title
Defect in accordance with Section 13.8, below, whether or not a Claim of Title
Defect has been timely and properly asserted with respect thereto.
16
4.11 Tax Matters
(a) To the Knowledge of CMS, except as set forth in Section 4.11(a) of the
CMS Disclosure Schedule, CMS has paid, or will pay in full all taxes
and assessments with respect to the Assets that are due prior to the
Effective Date, including all ad valorem, property, production,
severance and Other Taxes; to the Knowledge of CMS, except as set
forth at Section 4.11(a) of the CMS Disclosure Schedule, all tax
returns and reports required to be filed prior to the Effective Date
have been or will be timely and accurately filed; and to the Knowledge
of CMS, except as set forth in Section 4.11(a) of the CMS Disclosure
Schedule, no tax deficiencies have been assessed, nor is there any
audit in progress or threatened with respect to taxes due on the
Assets.
(b) (i) All applications for well determinations for each Qualifying Well
have been filed with the applicable state and federal agencies
under the Natural Gas Policy Act of 1978, as amended (the "NGPA")
and the rules and regulations of the Federal Energy Regulatory
Commission (the "FERC") under NGPA (the "NGPA Regulations")
requesting a determination that all of the gas produced from each
Qualifying Well is produced from "Devonian shale". Each such
application has been approved by the applicable state agency and
by the FERC and has been finally approved under and in accordance
with section 503 of the NGPA (as evidenced by appropriate FERC
certification). Such applications comply with the requirements of
the NGPA and NGPA Regulations. True and correct copies of such
certifications have been furnished to Buyer. No further
applications are required under the NGPA and the NGPA Regulations
to allow the legal sale of all gas produced from the Qualifying
Wells at a price equal to the price for such gas currently being
received. No production from the Qualifying Wells qualifies for
incentive prices under section 107 of the NGPA or the
deregulation provisions of the NGPA or Subtitle 13 of Title I of
the NGPA.
(ii) A) Except as set forth at Section 4.11(b) of the CMS
Disclosure Schedule, each Qualifying Well was drilled
(within the meaning of section 29(f) of the Code) after
December 31, 1979 and prior to January 1, 1993, and was
completed as a well capable of producing from the
17
formation described in section 3.01(x) (iii) of the
NGPA; and
B) All gas (except carbon dioxide) produced from each
Qualifying Well is a "qualified fuel" under section
29(c) of the Code.
(iii) Except as set forth at Section 4.11(b) of the CMS
Disclosure Schedule, the Qualifying Wells are perforated
only in the Antrim Formation and the gas produced from each
Qualifying Well is not commingled with any gas from that
Qualifying Well that is not produced from such formation.
(iv) Prior to January 1, 1980, there was no production of coal
seam, Devonian shale, geopressured brine or tight formation
gas in marketable quantities from the "property" (as used in
section 29 of the Code) on which any Qualifying Well is
located.
(v) No oil or gas produced from the Qualifying Wells qualifies
or has qualified for the enhanced oil recovery credit or any
other credit under section 43 of the Code and none has been
claimed or taken on such oil or gas.
(vi) No credits referred to in section 29(b)(4) have been claimed
with respect to any Qualifying Wells.
(vii) None of the special financing arrangements described in
subclauses (I), (II), or (III) of section 29(b) (3)(A)(i) of
the Code have been provided in connection with any project
that includes any of the Qualifying Wells.
4.12 Compliance With Permits and Licenses
To the Knowledge of CMS, CMS possesses all material federal, state and
local governmental and regulatory franchises, rights, privileges, permits,
grants, concessions, licenses, certificates, variances, authorizations and
approvals necessary to own and/or operate the Subject Property.
To the Knowledge of CMS, except as listed at Section 4.12 of the CMS
Disclosure Schedule, all Permits which are to remain in effect after the
Closing, are in full force and effect and will continue in full force and effect
through the Closing Date. To the Knowledge of CMS, except as listed at Section
4.12 of the
18
CMS Disclosure Schedule, CMS is not in default in any material respect under the
terms of any Permit which is to survive the Closing, nor to the Knowledge of
CMS, has it received notice of any material default thereunder which has not, or
will not be resolved as of the Closing Date.
4.13 Title
Subject to Section 18.1, below, and except for the Permitted Encumbrances,
as defined in Section 13.7, below, CMS has Defensible Title, as defined in
Section 13.6, below, to the Assets free and clear of all material Title Defects,
as defined in Section 13.8, below.
4.14 Consents, Approvals and Rights to Acquire
Except for consents, required notices to, filings with or other actions by
governmental entities which are customarily obtained subsequent to Closing, and
except as set forth at Section 4.14 of the CMS Disclosure Schedule, to the
Knowledge of CMS, no consent, approval, notice to or filing with any government
or governmental agency, or any other party, is required in connection with the
execution, delivery and performance of this Agreement by CMS, or as a condition
to the validity or enforceability of this Agreement and the consummation of the
transaction contemplated by this Agreement. Subject to the provisions of Article
XX, below, CMS shall identify and properly notify all parties who hold any
preferential right or option to purchase the Assets, or any part thereof, or
whose consent is required to transfer the Assets or any portion thereof.
4.15 Gas Contracts
Except as set forth at Section 4.15 of the CMS Disclosure Schedule, to the
Knowledge of CMS production from or attributable to the Subject Property is not
dedicated to any gas sales contracts, other than those which are terminable upon
thirty (30) day written notice.
4.16 Securities Disclosure/Representation
CMS is acquiring the QRI Stock for its own account and not with a view to
or for offer or resale in connection with any distribution thereof within the
meaning of the Securities Act and the rules and regulations pertaining to the
Securities Act, or a distribution thereof in violation of the Security Act, or
any other applicable federal or state securities laws. CMS is not acting as an
undisclosed agent for any other party or parties. CMS is an Accredited Investor.
19
CMS acknowledges that Purchaser has entered into this Agreement and will
consummate the transaction contemplated by this Agreement, in reliance on CMS's
representations and warranties under this Article IV.
ARTICLE V - REPRESENTATIONS OF PURCHASER
Purchaser represents and warrants to CMS that each of the statements and
representations contained in this Article V are true, correct and complete as of
the date of this Agreement, and will be true, correct and complete as of the
Closing Date:
5.1 Existence
Purchaser is incorporated under the business corporation statute of the
State of Delaware and is in good standing in the state, and is qualified to
carry on its business in the State of Michigan and is in good standing as a
foreign corporation under the business corporation statute of the State of
Michigan.
5.2 Execution
The execution, delivery and performance of this Agreement by Purchaser,
and the transaction contemplated by this Agreement, will not violate (i) any
provision of the certificate or articles of incorporation or bylaws of
Purchaser, (ii) any material agreement or instrument to which Purchaser is a
party or by which Purchaser is bound, (iii) any judgment, order, ruling, or
decree applicable to Purchaser as a party in interest, or (iv) any law, rule or
regulation applicable to Purchaser.
5.3 Authorization
The execution, delivery and performance of this Agreement and the
transaction contemplated by it have been authorized by requisite corporate
action on the part of Purchaser. This Agreement has been executed by an officer
or other representative of Purchaser empowered by Purchaser to execute this
Agreement, and it has been delivered by Purchaser. At the Closing, all documents
and instruments required to be executed and delivered by Purchaser shall have
been so executed and delivered. This Agreement does, and the documents and
instruments executed and delivered shall, constitute legal, valid and binding
obligations of Purchaser enforceable in accordance with their terms, subject to
the effects of bankruptcy, insolvency, reorganization, moratorium and similar
laws in effect relating to the rights and remedies of creditors, as well as to
general principles of equity. Purchaser need not give any notice to, make any
filing with, or obtain any authorization, consent or approval of any government
or governmental agency in order to consummate the transaction contemplated by
this Agreement.
5.4 Brokers
Purchaser has not incurred any liability, contingent or otherwise, for
broker's or finder's fees or commissions relating
20
to the transaction contemplated by this Agreement for which CMS shall have any
responsibility whatsoever.
5.5 Noncontravention
Neither the execution and the delivery of this Agreement, nor the
consummation of the transaction contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Purchaser is subject or any provision of its charter or bylaws,
or (ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which Purchaser is a party or by
which it is bound or to which any of its assets is subject.
5.6 Independent Evaluation and Title Review
Purchaser will be afforded the opportunity, at its own cost and risk, to
inspect the Assets and the Terra Assets and to examine copies of data and
records in CMS's and Terra's possession affecting the Assets and the Terra
Assets. Purchaser will be given access to all title, division order files,
contract and lease records and data, and all production, engineering,
environmental and other technical data, insofar as the foregoing relates to the
Assets and the Terra Assets, (but not including data and records which CMS, in
its sole discretion considers to be privileged, proprietary or confidential to
it and which are not directly related to the condition, quality and quantity of
the Assets, or which CMS or Terra cannot legally provide Purchaser because of
third party restriction on CMS or Terra, or disclosure of which will violate any
agreement to which CMS or Terra is a party). PURCHASER ACKNOWLEDGES THAT EXCEPT
AS OTHERWISE SPECIFIALLY PROVIDED IN THIS AGREEMENT, CMS HAS MADE NO
REPRESENTATIONS OR WARRANTIES AS TO THE CONDITION OF THE ASSETS OR THE TERRA
ASSETS, THE ACCURACY OR COMPLETENESS OF ANY DATA AND RECORDS PROVIDED BY CMS OR
TERRA, OR AS TO CMS'S TITLE TO THE ASSETS OR TERRA'S TITLE TO THE TERRA ASSETS.
IN ENTERING INTO AND PERFORMING THIS AGREEMENT, EXCEPT FOR, AND TO THE EXTENT OF
THE REPRESENATIONS AND WARRANTIES EXPRESSLY SET FORTH IN ARTICLES IV AND VI,
PURCHASER HAS RELIED AND WILL RELY SOLELY UPON ITS INDEPENDENT INVESTIGATION OF,
AND JUDGMENT WITH RESPECT TO THE ASSETS AND THE TERRA ASSETS, THEIR CONDITION,
VALUE AND CMS'S AND TERRA'S TITLE THERETO. The rights of Purchaser under this
Section 5.6 are expressly subject to the provisions of Article XII and Article
XIII, and except as specifically set forth in Article XII and Article XIII there
shall be no contingency to Purchaser completing the transaction contemplated by
this Agreement, with respect to such review and evaluation of the Assets and the
Terra Assets.
5.7 Securities Disclosure/Representation
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Purchaser is acquiring the Assets for its own account and not with a view
to or for offer or resale in connection with any distribution thereof within the
meaning of the Securities Act and the rules and regulations pertaining to the
Securities Act, or a distribution thereof in violation of the Security Act, or
any other applicable federal or state securities laws. Purchaser is not acting
as an undisclosed agent for any other party or parties. Purchaser is an
Accredited Investor. Purchaser is and has been actively involved in the business
of owning and operating producing oil and gas properties for a period in excess
of five (5) years prior to the Effective Date, is knowledgeable about the oil
and gas exploration and production business, and is not relying on CMS with
regard to any expectations Purchaser may have about any future income it may
receive from the Assets or the Terra Assets.
5.8 Bonds and Permits
Purchaser or its designated operator, other than Terra, shall, as of the
Closing Date have all bonds which are designated at Attachment J. Purchaser
shall furnish CMS proof that such bonds are in full force and effect with
respect to the Subject Property and the Terra Property. As to those portions of
the Subject Property and Terra Property for which CMS is named operator on the
State of Michigan well permit, Purchaser agrees, if necessary to take an
assignment of all such well permits in its name or in the name of its designee,
other than Terra.
5.9 Section 29 Tax Credits
Purchaser acknowledges that CMS will take or claim the section 29 tax
credits for production from the Qualifying Wells attributable to the Interim
Period, and Purchaser agrees not to take or claim such tax credits.
Purchaser acknowledges that CMS has entered into this Agreement, and
will consummate the transaction contemplated by this Agreement, in reliance on
Purchaser's representations and warranties under this Article V.
ARTICLE VI - REPRESENTATIONS CONCERNING TERRA
CMS represents and warrants to Purchaser that except as set forth in the
Terra Disclosure Schedule delivered by CMS to Purchaser on the date hereof and
initialed by the Parties, a copy of which is attached hereto as Attachment K,
each of the statements and representations contained in this Article VI are
true, correct and complete as of the date of this Agreement and will be true,
correct and complete as of the Closing Date.
6.1 Organization, Qualification and Corporate Power
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Each of Terra and its Subsidiaries, and to the Knowledge of CMS, Terra's
Affiliates, is a corporation or limited liability company duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
formation. Each of Terra and its Subsidiaries, and to the Knowledge of CMS,
Terra's Affiliates, is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the financial condition of Terra, its Subsidiaries and
Affiliates, taken as a whole. Each of Terra and its Subsidiaries, and to the
Knowledge of CMS, Terra's Affiliates has full power and authority to carry on
the businesses in which it is presently engaged and to own and use the
properties owned and used by it. The Terra Disclosure Schedule, at Section 6.1
thereof, identifies all of the Subsidiaries and Affiliates of Terra, and also
lists the directors and officers of each of Terra and its Subsidiaries.
6.2 Capitalization
The entire authorized capital stock of Terra consists of twenty million
(20,000,000) shares, of which twelve million sixty-five thousand four hundred
and twenty-two (12,065,422) Terra Shares are issued and outstanding. The issued
and outstanding Terra Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by CMS. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require CMS or Terra to issue, sell, or otherwise cause to become
outstanding any of the capital stock of Terra. Except as listed on the Terra
Disclosure Schedule at Section 6.2 thereof, the Terra Shares are free of any
pledge, lien, security interest or other encumbrance, and as of the Closing
Date, the Terra Shares shall be free and clear of any pledge, lien, security
interest or other encumbrance so listed at Section 6.2 of the Terra Disclosure
Schedule. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to Terra.
6.3 Noncontravention
To the Knowledge of CMS, neither the execution and the delivery of this
Agreement, nor the consummation of the transaction contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of Terra and its Subsidiaries is
subject, or any provision of the charter, bylaws or operating agreement of any
of Terra and its Subsidiaries or (ii) except as listed on the Terra Disclosure
Schedule at Section 6.3 thereof, conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel any agreement, contract,
lease, license, instrument, or other arrangement to which any of Terra and its
Subsidiaries is a party or by which it is bound or to which any of the Terra
Assets is subject (or result in the imposition of any Security Interest upon any
of the Terra Assets), except where
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the violation, conflict, breach, default, acceleration, termination,
modification, cancellation, failure to give notice, or Security Interest would
not have a material adverse effect on the financial condition of Terra and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate the
transaction contemplated by this Agreement. To the Knowledge of CMS, except as
listed on the Terra Disclosure Schedule at Section 6.3 thereof, none of Terra
and its Subsidiaries needs to give any notice to, make any filing with, or
obtain any authorization, consent, or approval of any government or governmental
agency in order for the Parties to consummate the transaction contemplated by
this Agreement, except where the failure to give notice, to file, or to obtain
any authorization, consent, or approval would not have a material adverse effect
on the financial condition of Terra and its Subsidiaries taken as a whole or on
the ability of CMS to consummate the transaction contemplated by this Agreement.
6.4 Subsidiaries and Affiliates
The Terra Disclosure Schedule sets forth at Section 6.4 thereof for each
Subsidiary (i) its name, any assumed name under which it conducts business and
jurisdiction of incorporation, (ii) the number of shares of authorized capital
stock of each class of its capital stock, if any, (iii) the number of issued and
outstanding shares of each class of its capital stock, the names of the holders
thereof, and the number of shares held by each such holder, if any, and (iv) the
number of shares of its capital stock held in treasury, if any. All of the
issued and outstanding shares of capital stock of each Subsidiary of Terra, have
been duly authorized and are validly issued, fully paid, and nonassessable.
Terra holds of record and owns beneficially all of the outstanding shares of
each corporate Subsidiary of Terra.
6.5 Financial Statements
Attached hereto at Attachment L are the following financial statements
(collectively the "Financial Statements"): (i) unaudited balance sheets and
statements of income as of and for the fiscal year ended December 31, 1997, for
Terra and its Subsidiaries consolidated; (ii) unaudited balance sheets and
statements of income as of and for the fiscal year ended December 31, 1998 for
Terra and each of its Subsidiaries; (iii) unaudited balance sheets and
statements of income, (the "Most Recent Financial Statements") as of and for the
twelve (12) months ended December 31, 1999 (the "Most Recent Fiscal Month End")
for Terra and each of its Subsidiaries; and (iv) the Consolidated Terra Energy
Pro Forma Balance Sheet dated December 31, 1999. The Terra consolidated
Financial Statements, Terra and each of its Subsidiaries Financial Statements
have been extracted from the CMS audited financial statements which have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, and accurately, completely and fairly represent the
financial condition of Terra as of December 31, 1999, and Terra has no other
liabilities or obligations, except as set forth at Section 6.5 of the Terra
Disclosure Schedule. However, the Most Recent Financial Statements are subject
to normal year-end adjustments.
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6.6 Events Subsequent to Most Recent Fiscal Month End
Since the Most Recent Fiscal Month End, there has not been any material
adverse change in the financial condition of Terra and its Subsidiaries taken as
a whole. Without limiting the generality of the foregoing, since the Most Recent
Fiscal Month End none of Terra and its Subsidiaries has engaged in any practice,
taken any action, or entered into any transaction outside the Ordinary Course of
Business which may have a material adverse effect on the financial condition of
Terra and its Subsidiaries, taken as a whole.
6.7 Legal Compliance
To the Knowledge of CMS, except as listed on the Terra Disclosure Schedule
at Section 6.7 thereof, each of Terra and its Subsidiaries has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state
and local governments (and all agencies thereof), except where the failure to
comply would not have a material adverse effect upon the financial condition of
Terra and its Subsidiaries taken as a whole, or on the ability of CMS to
consummate the transaction contemplated by this Agreement.
6.8 Tax Matters
(a) Except as set forth on the Terra Disclosure Schedule at Section
6.8(a) thereof, each of Terra and its Subsidiaries has filed on or
before the date hereof (or will timely file) all Tax Returns that are
required to be filed on or before the Closing Date, and has paid all
Taxes shown thereon as owing, except where the failure to file Tax
Returns or to pay Taxes would not have a material adverse effect on
the financial condition of Terra and its Subsidiaries taken as a
whole.
(b) The Terra Disclosure Schedule at Section 6.8(b) thereof, (i)
lists all Tax Returns filed with respect to any of Terra and its
Subsidiaries for taxable periods commencing on or after August 31,
1995, (ii) indicates those Tax Returns that have been audited, and
(iii) indicates those Tax Returns that currently are the subject of
audit. CMS has delivered to Purchaser correct and complete copies of
all Tax Returns, including Federal Income Tax Returns, examination
reports, and statements of deficiencies assessed against or agreed to
by any of Terra and its Subsidiaries since August 31, 1995.
(c) All such Tax Returns for taxable years or periods ending on or
before December 31, 1998 are (or will be) complete and accurate in all
material respects and disclose all Taxes required to be paid by Terra
and its Subsidiaries for the periods covered thereby, except for Taxes
for which adequate reserves have been established by Terra or its
Subsidiaries and such reserves are reflected in the computation of
Terra's
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consolidated net working capital and all Taxes shown to be due on such
Tax Returns have been timely paid or are reflected in the computation
of Terra's consolidated net working capital, and further except for
any adjustments which may be made to the Tax Return for the period
ending December 31, 1998 pursuant to an Internal Revenue Service
audit.
(d) Except as set forth on the Terra Disclosure Schedule at Section
6.8(d) thereof, none of Terra or its Subsidiaries have waived or been
requested to waive any statute of limitations in respect of any Taxes.
(e) Except as set forth on the Terra Disclosure Schedule at Section
6.8(e) thereof, the Tax Returns for taxable years or periods ending on
or before December 31, 1998 have been examined by the Internal Revenue
Service, or the period for assessment of Taxes in respect of which
such Tax Returns were required to be filed has expired.
(f) Except as set forth on the Terra Disclosure Schedule at Section
6.8(f) thereof, there is no action, suit, investigation, audit, claim
or assessment pending or, to the Knowledge of CMS, proposed or
threatened with respect to Taxes of Terra or its Subsidiaries for
taxable years or periods ending on or before December 31, 1998 and, to
the Knowledge of CMS, no basis exists therefor for which adequate
reserves have not been established and such reserves are reflected in
the computation of Terra's consolidated net working capital.
(g) Except as set forth on the Terra Disclosure Schedule at Section
6.8(g) thereof, all deficiencies asserted or assessments made as a
result of any examination of the Tax Returns for taxable years or
periods ending on or before December 31, 1998 have been paid in full
or are reflected in the computation of Terra's consolidated net
working capital.
(h) Except as set forth on the Terra Disclosure Schedule at Section
6.8(h) thereof, there are no Tax indemnity agreements to which Terra
or its Subsidiaries are a party or are bound.
(i) There are no liens for Taxes upon the Terra Assets, except liens
relating to current Taxes not yet due or which are reflected in the
computation of Terra's consolidated net working capital.
(j) All Taxes which Terra or its Subsidiaries are required by law to
withhold or to collect for payment have been duly withheld and
collected, and have been paid or accrued.
(k) To the Knowledge of CMS, any accruals for deferred Taxes are
adequate to cover any deferred tax liability of Terra and its
Subsidiaries determined in accordance with GAAP through the date
thereof.
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(l) There are no Tax rulings, requests for private letter rulings or
requests for technical advice, in each case initiated by Terra or its
Subsidiaries, or requests for a change in method of accounting or
closing agreements relating to Terra or its Subsidiaries for Taxes for
any period after December 31, 1998.
(m) None of Terra or its Subsidiaries has filed a consent under
section 341(f) of the Code or any comparable provision of state
statutes.
(n) Since January 1, 1999, none of Terra or its Subsidiaries have
taken any action not in accordance with past practice that would have
the effect of deferring any Tax liability for Terra or any Subsidiary
from any taxable period ending on or before December 31, 1998 to any
taxable period ending after December 31, 1998.
(o) Except as set forth on the Terra Disclosure Schedule at Section
6.8(o) thereof, no income or gain of Terra or its Subsidiaries has
been deferred pursuant to Treasury Regulations (S)(S) 1.1502-13 or -
14, or Temporary Treasury Regulation (S)(S) 1.1502-13T or -14T.
(p) None of the Terra Assets is required to be treated as owned by
another Person pursuant to section 168(f)(8) of the Code (as in effect
prior to its amendment by the Tax Equity and Fiscal Responsibility Act
of 1982) or is "tax exempt use property" within the meaning of section
168(h) of the Code or is subject to a so-called TRAC lease under
section 7701(h) of the Code or any predecessor provision.
(q) Terra and its Subsidiaries are the owners for Income Tax
purposes of all property which it has leased to any Person.
(r) Neither Terra nor its Subsidiaries have participated in or
cooperated with an international boycott, within the meaning of
section 999 of the Code, and all filing requirements imposed by
section 999 of the Code with respect to Terra and its Subsidiaries
have been and will be complied with.
(s) Neither Terra nor its Subsidiaries have disposed of property in
a transaction being accounted for under the installment method
pursuant to section 453 or 453A of the Code.
(t) Neither Terra nor its Subsidiaries has any corporate acquisition
indebtedness, as described in section 279(b) of the Code.
(u) Except as set forth on the Terra Disclosure Schedule at Section
6.8(u) thereof, no Taxes with respect to any period ending on or
before December 31, 1998 were paid by Terra or its Subsidiaries (or
charged to Terra or its Subsidiaries through any intercompany account
or payment) after December 31, 1998.
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(v) Except as set forth on the Terra Disclosure Schedule at Section
6.8(v) thereof, no portion of the Terra Assets (i) has been
contributed to and is currently owned by a tax partnership; (ii) is
subject to any form of agreement (whether formal or informal, written
or oral) deemed by any state or federal Tax statute, rule or
regulation to be or to have created a tax partnership; or (iii)
otherwise constitutes "partnership property" (as that term is used
throughout Subchapter K of Chapter 1 of Subtitle A of the Code) of a
tax partnership.
(w) (i) All applications for well determinations for each Qualifying
Well have been filed with the applicable state and federal
agencies under the Natural Gas Policy Act of 1978, as amended
(the "NGPA") and the rules and regulations of the Federal Energy
Regulatory Commission (the "FERC") under the NGPA (the "NGPA
Regulations") requesting a determination that all of the gas
produced from each Qualifying Well is produced from "Devonian
shale". Each such application has been approved by the
applicable state agency and by the FERC and has been finally
approved under and in accordance with section 503 of the NGPA
(as evidenced by appropriate FERC certification). Such
applications comply with the requirements of the NGPA and the
NGPA Regulations. True and correct copies of such
certifications have been furnished to Buyer. No further
applications are required under the NGPA and the NGPA
Regulations to allow the legal sale of all gas produced from the
Qualifying Wells at a price equal to the price for such gas
currently being received. No production from the Qualifying
Wells qualifies for incentive prices under section 107 of the
NGPA or the deregulation provisions of the NGPA or Subtitle 13
of Title I of the NGPA.
(ii) A) Except as set forth at Section 6.8(w) of the Terra
Disclosure Schedule, each Qualifying Well was drilled
(within the meaning of section 29(f) of the Code) after
December 31, 1979 and prior to January 1, 1993, and was
completed as a well capable of producing from the formation
described in section 3.01(x)(iii) of the NGPA; and
B) All gas (except carbon dioxide) produced from each
Qualifying Well is a "qualified fuel" under section 29(c) of
the Code.
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(iii) Except as set forth at Section 6.8(w) of the Terra Disclosure
Schedule, the Qualifying Wells are perforated only in the Antrim
formation and the gas produced from each Qualifying Well is not
commingled with any gas from that Qualifying Well that is not
produced from such formation.
(iv) Prior to January 1, 1980, there was no production of coal seam,
Devonian shale, geopressured brine or tight formation gas in
marketable quantities from the "property" (as used in section 29
of the Code) on which any Qualifying Well is located.
(v) No oil or gas produced from the Qualifying Wells qualifies or
has qualified for the enhanced oil recovery credit or any other
credit under section 43 of the Code and none has been claimed or
taken on such oil or gas.
(vi) No credits referred to in section 29(b)(4) have been claimed
with respect to any Qualifying Wells.
(vii) None of the special financing arrangements described in
subclauses (I), (II), or (III) of section 29(b)(3)(A)(i) of the
Code have been provided in connection with any project that
includes any of the Qualifying Wells.
6.9 Powers of Attorney
To the Knowledge of CMS, there are no outstanding powers of attorney
executed on behalf of any of Terra and its Subsidiaries.
6.10 Litigation
Except as set forth in Section 6.10 of the Terra Disclosure Schedule
there is no outstanding injunction, judgment, order, decree, ruling or charge
which could have a material adverse effect on the Terra Assets, nor, except as
set forth in Section 6.10 of the Terra Disclosure Schedule is CMS or Terra a
party to any action, suit, proceeding, hearing or investigation, pending or
overtly threatened which involves the Terra Assets, or Terra's ownership or
operation of the Terra Assets.
6.11 Employees and Employee Benefits
(a) As of the Effective Date, Terra has no employees or any continuing
obligations to any former employee(s) of Terra.
(b) Neither Terra nor its Subsidiaries maintains or contributes to any
Employee Benefit Plan, Employee
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Pension Benefit Plan, Employee Welfare Benefit Plan or Multiemployer
Plan.
(c) There are no claims or actions pending against Terra or its
Subsidiaries asserted by any Person or former employee, or any
governmental agency or body with respect to any employee matter, and
to the Knowledge of CMS there are no claims or actions relating to any
employment matter threatened against Terra or its Subsidiaries.
6.12 Environmental, Health and Safety Matters
Except as set forth in Section 6.12 of the Terra Disclosure Schedule,
Terra is in compliance with all Environmental, Health and Safety Requirements
insofar as the same pertain to the Terra Assets, except where the failure to
comply would not have a material adverse effect upon the Terra Assets; and
except as set forth in Section 6.12 of the Terra Disclosure Schedule, neither
Terra nor the Terra Assets is the subject of any order, ruling, proceeding,
hearing or investigation, either pending or overtly threatened relating to
Environmental, Health and Safety Requirements. Except as set forth in Section
6.12 of the Terra Disclosure Schedule, neither CMS nor Terra has received any
written notice, report or other information regarding any actual or alleged
material violation of any Environmental, Health and Safety Requirements with
respect to the Terra Assets, and as of the Effective Date no condition exists
with respect to the Terra Assets that could give rise to future liability or
obligations under the Environmental, Health and Safety Requirements.
6.13 No Guaranties; Extension of Credit
Except as set forth in the Terra Disclosure Schedule at Section 6.13
thereof, and further except for customary indemnification and guaranty
provisions contained in any operating agreement or other commonly employed oil
and gas agreements, and further except for extensions of credit made in the
Ordinary Course of Business, no material obligations or liabilities of Terra or
its Subsidiaries are guaranteed by or subject to a similar contingent obligation
of any other Person, nor has Terra or its Subsidiaries guaranteed or become
subject to a similar contingent obligation in respect of the obligations or
liabilities of, or extended credit to any other Person. With respect to the CMS
Oil and Gas Company Credit Agreement referenced at Section 6.13 of the Terra
Disclosure Schedule, CMS represents that it will obtain a release of Terra as
guarantor thereunder at or prior to the Closing Date.
6.14 Permits
To the Knowledge of CMS, each of Terra and its Subsidiaries and
Affiliates possesses all material federal, state and local governmental and
regulatory franchises, rights, privileges, permits, grants, concessions,
licenses, certificates, variances, authorizations, approvals, and other material
authorizations (including any amendments to any thereof) necessary to own or
lease and operate the Terra Assets and to conduct its business as now conducted
(collectively, the "Permits").
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To the Knowledge of CMS, except as listed on the Terra Disclosure Schedule
at Section 6.14 thereof, all Permits are in full force and effect and will
continue in full force and effect through the Closing Date. To the Knowledge of
CMS, except as listed on the Terra Disclosure Schedule at Section 6.14 thereof,
neither Terra nor its Subsidiaries and Affiliates is in default in any material
respect under the terms of any Permit nor to the Knowledge of CMS has Terra or
its Subsidiaries and Affiliates received notice of any material default
thereunder which has not, or will not be resolved as of the Closing Date.
6.15 Compliance With Contracts
Terra has performed all of its obligations under the terms of all
contracts and agreements pertaining to the Terra Assets, except where the
failure to perform would not have a material adverse effect upon the Terra
Assets, and neither CMS nor Terra has received written notice from any party of
an alleged default by Terra under the terms of any contract or agreement, or
that any contract or agreement is not valid and enforceable in accordance with
its terms insofar, and only insofar, as same relate to the Terra Assets.
Anything to the contrary contained herein, notwithstanding, this Section 6.15
does not, and shall not under any circumstances be deemed to include or apply to
matters constituting Title Defects in accordance with Section 13.8, below,
whether or not a Claim of Title Defect has been timely and properly asserted
with respect thereto.
6.16 Title
Subject to Section 18.1, below, and except for the Permitted Encumbrances,
as defined in Section 13.7, below, Terra has Defensible Title, as defined in
Section 13.6, below, to the Terra Assets free and clear of all material Title
Defects, as defined in Section 13.8, below.
6.17 Consents, Approvals and Rights to Acquire
Subject to the provisions of Article XX, below, CMS shall identify and
properly notify all parties who hold any preferential right or option to
purchase the Terra Assets, or any part thereof, or whose consent is required to
consummate the transaction contemplated by this Agreement.
6.18 Gas Contracts
Except as set forth at Section 6.18 of the Terra Disclosure Schedule, to
the Knowledge of CMS, production from or attributable to the Terra Property is
not dedicated to any gas sales contracts, other than those which are terminable
upon thirty (30) day written notice.
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6.19 Material Contracts
Except as contemplated by this Agreement, and except as set forth in a
schedule of material contracts to be furnished by CMS to Purchaser on or before
March 27, 2000, or in any Attachment to this Agreement, and except for those
agreements, instruments or documents included in subpart (b) below, to the
extent contained in the files and records, including without limitation computer
files and records, located either at Terra's offices in Traverse City, Michigan
or CMS's offices in Houston, Texas, and made fully available to Purchaser,
neither Terra nor any of its Subsidiaries is a party to or is bound by any
material written or oral contract, agreement, commitment or instrument or
amendment to any of the foregoing (excluding any of the foregoing which has been
fully performed by all parties) of the type or in the nature of those enumerated
below:
(a) for the purchase, sale or lease (except if the scheduled lease
payments are less than $10,000 per year) of real property;
(b) relating to oil and gas leases, licenses, permits and similar
arrangements, operating agreements, farm-out and farm-in agreements,
service contracts and similar agreements, option agreements, pooling
and unitization agreements, production marketing agreements, gas
balancing agreements, gas purchase and sales contracts, production
sales contracts, processing agreements, permits, licenses and orders,
easements, rights of way, pipeline agreements, exploration agreements,
participation agreements, oil sales contracts, and all agreements or
amendments relating to the same, or assignments of rights or
obligations under any such agreements, all relating to the exploration
for or the development, production, treating, processing,
transportation or marketing of hydrocarbons;
(c) which provides for, or relates to, the guarantee by Terra or any of
its Subsidiaries of any obligation of any customers, suppliers,
officers, directors, employees or affiliates of Terra or such
Subsidiaries;
(d) which provides for, or relates to, the incurrence by Terra or any of
its Subsidiaries of debt for borrowed money in excess of $10,000;
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(e) which provides for, or relates to, any non-competition or
confidentiality arrangement with any person, including any current or
former director, officer or employee of Terra or any of its
Subsidiaries;
(f) for capital expenditures in excess of $25,000 for any single project
or related series of projects;
(g) any partnership, joint venture or other similar arrangements or
agreements involving a sharing of profits or losses;
(h) which (other than contracts, agreements, commitments and instruments
of the nature described in clauses (a) through (g) above) involve
payments or receipts by Terra or any of its Subsidiaries of more than
$10,000; and
(i) for any purpose which is material to the business of Terra and its
Subsidiaries taken as a whole.
6.20 Disclaimer of All Other Representations and Warranties
Except as expressly set forth in Article IV and this Article VI, CMS makes
no representation or warranty, express or implied, at law or in equity, in
respect of the Assets, the Terra Assets, or the assets of any of Terra's
Subsidiaries or Affiliates, including, without limitation, with respect to
merchantability or fitness for any particular purpose of the Assets, the Terra
Assets or the assets of any of Terra's Subsidiaries or Affiliates, and any such
other representations or warranties are hereby expressly disclaimed.
ARTICLE VII - OPERATIONS AND CASUALTY LOSS
7.1 Revenues and Expenses
During the Interim Period, CMS shall continue to receive proceeds from the
sale of hydrocarbons produced from or allocated to the Subject Property and the
Terra Property and all other proceeds attributable to the Assets and the Terra
Assets. CMS and Terra will continue to pay expenses attributable to the Assets
and the Terra Assets in the same manner as before the Effective Date. At
Closing, the Purchase Price shall be adjusted for such proceeds and expenses in
the manner set forth in Section 3.3, above.
7.2 Operations and Loss of Assets and Terra Assets
(a) Purchaser acknowledges that portions of the Subject Property and
the Terra Property may be producing oil and/or gas properties, or may
be pooled with producing oil and/or gas properties. Purchaser agrees
that until
33
Closing, the Assets and the Terra Assets may continue to be operated
and hydrocarbons will continue to be produced from the Subject
Property and the Terra Property or properties pooled therewith. CMS
and Terra, as to the portions of the Subject Property and the Terra
Property which CMS or Terra now operates, shall continue to operate
the same in a good and workmanlike manner until the Transfer Date,
when such operations, to the extent permitted by applicable contracts
and agreements, shall be turned over to and become the responsibility
of Purchaser; unless an applicable unit, pooling, communitization or
operating agreement otherwise requires, in which case (unless
Purchaser and CMS otherwise agree) CMS or Terra shall continue the
physical operation of such portions of the Subject Property and the
Terra Property, if permitted by, and pursuant to and under the terms
of such applicable contract(s) and agreement(s), until such time after
Closing as such applicable contract(s) and agreement(s) may require;
provided, however, if the transaction contemplated by this Agreement
proceeds to Closing, then Purchaser shall assume all risk of, and CMS
shall have no liability to Purchaser for, losses or damages sustained,
or liabilities incurred, except as may result directly from CMS's
gross negligence or willful misconduct in conducting the operation of
the Subject Property and the Terra Property (or portions thereof)
after the Effective Date. Any such loss, damage or liability which
Purchaser seeks to impose on CMS, shall be limited to the rights and
remedies provided a non-operator under the applicable contract(s) or
agreement(s). Purchaser shall have no recourse against CMS if the
applicable contract(s) or agreement(s) delay or prevent Purchaser from
assuming operation of the operated portions of the Subject Property
and the Terra Property. In no event shall CMS be required to operate
the operated portions of the Subject Property or the Terra Property
for a period longer than two (2) months after the Closing Date. In the
event that Purchaser is unable, for any reason, to assume operatorship
of any of the Subject Properties or the Terra Properties which CMS
continues to operate as of that date, then CMS will appoint Purchaser
as its contract operator, and Purchaser shall, and does hereby agree
to assume all operations on the operated portions of the Subject
Property and the Terra Property. Purchaser shall thereafter assume and
be responsible for, and shall defend, indemnify, and hold CMS, its
parents, affiliates and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees, and agents,
harmless from, against and in respect of any and all Claims based
upon, arising out of or related to operation of the operated portions
of the Subject Property and the Terra Property, including but not
limited to accounting, disbursement of revenues and other general
administrative matters relating thereto. Purchaser shall be entitled
to all applicable fees and charges relating to such operations which
are attributable to periods from and after the date on which Purchaser
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assumes operatorship of each of the wells and units comprising the
operated portions of the Subject Property and the Terra Property.
Operation of any portion of the Subject Property or the Terra Property
from and after the Effective Date by CMS shall be for and on behalf of
Purchaser, and CMS shall make appropriate charges to Purchaser,
including overhead charges, for the share of all such charges
attributable to the Subject Property and the Terra Property, and to
all other working interest owners, which charges shall be retained by
CMS and not paid or credited to Purchaser regardless of when invoiced
and received. Except as otherwise provided in Sections 8.4 and
15.2(k),below, all such charges shall be made in accordance with the
applicable operating agreement for each such property, or the
applicable contract which otherwise controls. If there are no
presently effective operating agreements or contracts, then such
charges will be in accordance with the applicable COPAS rate for the
area and type of well to which the charges apply, as determined by
CMS. Any such charges and expenses due from Purchaser or which are due
from third parties and are received by Purchaser, regardless of when
invoiced and received, may be recovered by CMS as part of the Closing
or Post-Closing Adjustments (pursuant to Sections 15.2(e) and 16.2,
below), as appropriate. Purchaser, its heirs, successors, and
affiliates shall assume the risk of, and shall defend, indemnify, and
hold CMS, its parents, affiliates, and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees
and agents, harmless from, against and in respect of any and all
Claims, based upon, arising out of, or attributable to personal
injury, loss of life or damage to property suffered or sustained as
the result of any action or activity related to operation of the
Subject Property and the Terra Property on or after the Effective
Date, except to the extent that such personal injury, loss of life or
damage to property was exclusively and directly caused by CMS's gross
negligence or willful misconduct.
(b) Purchaser acknowledges and agrees that CMS cannot and does not
covenant or warrant that Purchaser shall become successor operator of
all or any part of the portion of the Subject Property which CMS
currently operates, nor that Terra shall be allowed to continue as
operator of all or any part of the portions of the Terra Property
which it operates, since the Subject Property and the Terra Property
may be subject to unit, pooling, communitization or operating
agreements or other agreements which control the appointment of a
successor operator. Purchaser will take the necessary action to
attempt to succeed CMS, or to allow Terra to continue as operator as
to all properties operated by CMS or Terra as of the Effective Date.
CMS agrees, however, that as to the portion of the Subject Property
which it operates, where it will assist to facilitate the appointment
of a successor operator, CMS will, upon Purchaser's written request,
resign as operator at
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Closing. Purchaser will act expeditiously to take all reasonable
measures, including, but not limited to, taking action prior to
Closing if the Parties mutually agree that such action is appropriate,
to have Purchaser appointed successor operator of those portions of
the Subject Property which CMS operates, or, if the necessary votes
under the applicable agreement(s) cannot be obtained to appoint
Purchaser as successor operator, to have another working interest
owner of such properties appointed successor operator, per the terms
of any applicable operating or other agreement(s).
(c) If the transaction contemplated by this Agreement proceeds to closing,
then the risk of casualty loss of the Assets and the Terra Assets
shall pass to Purchaser as of the Effective Date. CMS shall maintain
its current insurance on the Assets and the Terra Assets through the
Transfer Date, and the Purchase Price shall be adjusted upward to
reflect a prorata share of the paid premiums of all such insurance
attributable to periods after the Effective Date. Attached hereto as
Attachment M is a schedule of the insurance coverages which CMS
presently maintains with respect to the Assets and the Terra Assets.
CMS shall be entitled to receive any and all insurance proceeds
relating to the Assets and the Terra Assets attributable to events
which occurred prior to the Effective Date, and if the transaction
contemplated by this Agreement proceeds to Closing, then Purchaser
shall be entitled to receive any and all insurance proceeds
attributable to events which occur on or after the Effective Date. In
addition, Purchaser shall assume all risk of any change in condition
of the Assets and the Terra Assets which occurs during the Interim
Period, except to the extent any change in condition is exclusively
and directly caused by the gross negligence or willful misconduct of
CMS or Terra.
ARTICLE VIII - PRE-CLOSING OBLIGATIONS OF CMS
8.1 Encumbrances
During the Interim Period, except as otherwise approved by Purchaser and
except for the operation of the Subject Property and the Terra Property and the
production and sale of hydrocarbons from or allocable to the Subject Property
and the Terra Property in the Ordinary Course of Business as otherwise provided
in this Agreement, CMS and Terra shall not transfer, sell, hypothecate, encumber
or otherwise dispose of any of the Assets or the Terra Assets (other than as
required in connection with the exercise by third parties of preferential rights
to purchase or rights of reconveyance or similar rights, applicable to any
portion of the Assets or the Terra Assets as provided in Article XX).
8.2 Approvals/Consents
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During the Interim Period, CMS covenants and agrees that it will use
reasonable efforts to identify and obtain all permissions, approvals and
consents by any governmental authorities or agencies as may be required to
consummate the transaction contemplated hereunder (excluding governmental
permissions, approvals and consents which are customarily obtained after the
assignment of an oil and gas lease or interest). Consistent with Section 9.1,
below, Purchaser shall assist CMS in timely identifying and obtaining all such
items. The Parties shall cooperate to identify all such permissions, approvals
and consents in a timely manner so as to permit the Closing to occur on or
before the Closing Date. Except for an appropriate adjustment to the Purchase
Price, consistent with Attachment H, Purchaser shall have no recourse against
CMS with regard to any loss occasioned by the failure to properly identify or
timely notify any such permission, approval or consent. CMS shall promptly
notify Purchaser of any written claim received by CMS from any third party
relating to such permissions, approvals or consents.
8.3 Notices and Consents
CMS shall, and will cause each of Terra and its Subsidiaries to give any
notices to, make any filings with, and use commercially reasonable efforts to
obtain any authorizations, consents, and approvals of governments and
governmental agencies in connection with the matters referred to in Section 4.4
and Section 6.3, above, if any.
8.4 Operation of Business
CMS will not cause or permit any of Terra and its Subsidiaries to engage in
any practice, take any action, or enter into any transaction outside the
Ordinary Course of Business, which may have a material adverse effect on the
financial condition of Terra and its Subsidiaries taken as a whole. Without
limiting the generality of the foregoing, CMS will not cause or permit any of
Terra and its Subsidiaries to engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business the primary purpose
or effect of which will be to generate or preserve Cash. From and after the date
of this Agreement, neither CMS nor Terra shall incur or consent to any
extraordinary or unusual expense with respect to the Assets or the Terra Assets
in excess of $50,000.00 without first obtaining Purchaser's written consent.
8.5 Full Access
CMS will permit, and CMS will cause each of Terra and its Subsidiaries to
permit representatives of the Purchaser to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of CMS, Terra and its Subsidiaries, to all premises, properties,
personnel, books, financial and other records (including without limitation tax
records and to the extent prepared, net operating statements for the years 1997,
1998 and 1999), contracts, and documents of or pertaining to each of the Assets
and the Terra Assets. CMS shall also permit representatives of the Purchaser to
have full access at all reasonable times, and in a manner so as not to interfere
37
with the normal operations of the Assets and the Terra Assets, to the Subject
Property and the Terra Property. Purchaser shall defend, indemnify and hold CMS,
and its successors and assigns, harmless from, against and in respect of any and
all Claims incurred by CMS by reason of damage or injury to any person or
property caused directly or indirectly as a result of Purchaser's inspection of
the Assets and the Terra Assets. Purchaser will treat and maintain as such any
Confidential Information it receives from CMS, Terra, or its Subsidiaries and
Affiliates in the course of the review contemplated by this Section 8.5, and
will not use any of the materials received from CMS, Terra, and its Subsidiaries
and Affiliates, or any information derived pursuant to this Section 8.5,
including, but not limited to, any Confidential Information, except in
connection with this Agreement. All materials reviewed and the results of all
tests, reviews, data and evaluations shall be maintained confidential through
the Closing Date. In the event the transaction contemplated by this Agreement is
not consummated for any reason whatsoever, then Purchaser shall immediately
provide all such tests, reviews, data and evaluations, and all written
materials, computer materials and other tangible embodiments related thereto to
CMS, and shall not maintain copies thereof, and shall maintain such materials,
tests, reviews, data and evaluations as Confidential Information, all in
accordance and consistent with Section 22.10. Purchaser will treat and hold as
such any Confidential Information it receives from CMS, Terra, or its
Subsidiaries in the course of the reviews contemplated by this Section 8.5, will
not use any of the Confidential Information except in connection with this
Agreement, and, if this Agreement is terminated for any reason whatsoever, will
return to the CMS, Terra, and its Subsidiaries all tangible embodiments (and all
copies) of the Confidential Information which are in its possession, all in
accordance with Section 22.10, below.
8.6 Notice of Developments
CMS will give prompt written notice to Purchaser of any matter which CMS
discovers, or of which CMS is made aware, which causes, or with the passage of
time or the giving of notice, may cause any of the representations or warranties
set forth in Article IV and Article VI to be untrue, incorrect or incomplete.
Subject to the provisions of Sections 9.6 and 17.1(d), below, no disclosures by
CMS pursuant to this Section 8.6, however, shall be deemed to prevent or cure
any misrepresentation or breach of warranty.
ARTICLE IX - PRE-CLOSING OBLIGATIONS OF PURCHASER
9.1 Approvals/Consents
During the Interim Period, Purchaser covenants and agrees it will assist
CMS in identifying and obtaining all permissions, approvals and consents, of any
governmental authorities or agencies as may be required to consummate the
transaction contemplated hereunder (excluding governmental permissions,
approvals and consents which are customarily obtained after the assignment of an
oil and gas lease or interest). The Parties shall cooperate to identify all such
permissions, approvals and
38
consents in a timely manner so as to permit the Closing to occur on or before
the Closing Date. Except for an appropriate adjustment to the Purchase Price,
consistent with Attachment H, Purchaser shall have no recourse against CMS with
regard to any loss occasioned by the failure to properly identify or timely
notify any such permission, approval or consent. Purchaser shall promptly notify
CMS of any written claim received by Purchaser from any third party relating to
such permissions, approvals or consents.
9.2 Bonds and Permits
(a) Attached hereto as Attachment J is a list of all bonds held by CMS, or
held by Terra and backed by CMS, relating to the Assets and the Terra
Assets. Purchaser has represented to CMS that it or its designated
operator, other than Terra, shall, as of the Closing Date have all
required federal, state and local lease and operating bonds. Purchaser
shall provide CMS with satisfactory proof that the bonds are in full
force and effect for the Assets and the Terra Assets as of the Closing
Date or as soon thereafter as is reasonably possible. Purchaser hereby
covenants and agrees to defend, indemnify and hold CMS, Terra, its
parent, subsidiary and affiliate entities, and CMS's and their
officers, directors, employees and agents, harmless from and against
any and all Claims in connection with any loss under or claims
relating to any of the bonds listed on Attachment J from and after the
Effective Date.
(b) Purchaser shall be responsible, and shall use its reasonable best
efforts to the extent that it has the ability, to confirm or do all
things necessary so that the transaction contemplated by this
Agreement does not cause the breach of any terms or conditions of the
Permits or the forfeiture or impairment of any rights thereunder and
that no consents, approvals or acts of, or the making of any filing
with, any governmental body, regulatory commission or other party will
be required to be obtained in respect of any Permit as a result of the
consummation of the transaction contemplated by this Agreement. CMS
agrees to use its reasonable commercial best efforts to cooperate with
Purchaser and to assist Purchaser to effectuate the foregoing.
9.3 Corporate Documentation
On or before the Closing Date, Purchaser shall provide CMS the documents
set forth in this Section 9.3. All documents shall be dated no earlier than
thirty (30) days before Closing.
(a) Certificate of Good Standing certified by the Secretary of State
for the state in which Purchaser is incorporated.
(b) A current statement, certified by the Secretary of State for the
State of Michigan, that Purchaser is
39
authorized to do business in the State of Michigan and is in good
standing as a foreign corporation.
(c) A copy of a resolution by the board of directors of Purchaser
authorizing the transaction intended by this Agreement and authorizing
the individual who executes this Agreement and any conveyance
instrument on behalf of the corporation to do so, certified by the
corporate secretary or assistant secretary of Purchaser.
(d) A certificate of the secretary or assistant secretary of Purchaser
certifying the incumbency and specimen signature of the officer of
Purchaser who executes this Agreement and any assignments or other
documents required to be executed by Purchaser, pursuant to the terms
of this Agreement.
(e) If Purchaser is a partnership or other entity, Purchaser agrees
to provide CMS such documentation, as CMS requires to verify
Purchaser's status and the authority of its agent prior to Closing.
9.4 Notices and Consents
Purchaser will give any notice to, make any filings with, and use
commercially reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies in connection with the
matters referred to in Sections 3.4(a) and 5.3, above, or required pursuant to
Section 5.7, above, if any.
9.5 Notice of Developments
Purchaser will give prompt written notice to CMS of any material adverse
development causing a breach of any of its representations and warranties
contained in Article V, above. No disclosure by Purchaser pursuant to this
Section 9.5, however, shall be deemed to prevent or cure any misrepresentation
or breach of warranty.
9.6 Notice of Misrepresentation or Breach of Warranty
Purchaser will give prompt written notice to CMS of any matter which
Purchaser discovers, or of which Purchaser is made aware, which causes, or with
the passage of time or the giving of notice, may cause any of the
representations or warranties set forth in Article IV or Article VI to be
untrue, incorrect or incomplete. No disclosure by Purchaser pursuant to this
Section 9.6, however, shall be deemed to prevent or cure any misrepresentation
or breach of warranty, unless Purchaser fails to give CMS written notice of any
such matter known, discovered or disclosed to Purchaser within four (4) business
days after such matter becomes known by, discovered by or disclosed to
Purchaser, in which case any such misrepresentation or breach of warranty shall
be deemed waived or cured.
ARTICLE X - CMS'S CONDITIONS OF CLOSING
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CMS's obligation to consummate the transaction provided for herein is
subject to the satisfaction by Purchaser or waiver by CMS of the following
conditions set forth in Section 10.1 through Section 10.6, inclusive:
10.1 Representations
The representations and warranties of Purchaser contained in Article V
shall be true and correct in all material respects on the Closing Date as though
made on and as of that date.
10.2 Performance
Purchaser shall have performed in all material respects the obligations,
covenants and agreements to be performed by Purchaser at or prior to the
Closing.
10.3 Pending Matters
No suit, action or other proceeding by a third party or a governmental
authority shall be pending or threatened which seeks substantial damages from
CMS in connection with, or seeks to restrain, enjoin or otherwise prohibit, the
consummation of the transaction contemplated by this Agreement.
10.4 Waiting Periods
All applicable waiting periods (and any extensions thereof) under any
applicable act shall have expired or otherwise been terminated and the Parties,
Terra, and its Subsidiaries shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Sections 4.4, 5.5 and 6.3, above.
10.5 Opinion of Counsel
CMS shall have received an Opinion of Counsel, dated as of Closing,
from Purchaser's counsel, in form and substance as set forth at Attachment N.
10.6 Payment of Purchase Price or Adjusted Purchase Price
Purchaser shall have wire transferred to CMS the Purchase Price or
Adjusted Purchase Price due at Closing as described in Section 3.4(b), above,
pursuant to written instructions delivered by CMS.
CMS may waive any condition specified in this Article X, by executing
a statement to that effect at or prior to Closing.
ARTICLE XI - PURCHASER'S CONDITIONS OF CLOSING
Purchaser's obligation to consummate the transaction provided for herein
is subject to the satisfaction by CMS or waiver by Purchaser of the following
conditions set forth in Sections 11.1 through 11.5, inclusive:
41
11.1 Representations
The representations and warranties of CMS contained in Article IV,
except Section 4.13, and in Sections 6.2, 6.3, 6.5, 6.7, 6.8(w), 6.10, 6.12,
6.14, 6.15, 6.18, and 6.19 shall be true and correct in all material respects on
the Closing Date as though made on and as of that date.
11.2 Performance
CMS shall have performed in all material respects the obligations,
covenants and agreements to be performed by it at or prior to the Closing.
11.3 Pending Matters
No suit, action or other proceeding by a third party or a governmental
authority shall be pending or threatened which seeks substantial damages from
Purchaser in connection with, or seeks to restrain, enjoin or otherwise
prohibit, the consummation of the transaction contemplated by this Agreement.
11.4 Waiting Periods
All applicable waiting periods (and any extensions thereof) under any
applicable act, shall have expired or otherwise been terminated and the Parties,
Terra, and its Subsidiaries shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred to in
Sections 4.4, 5.5 and 6.3, above.
11.5 Opinion of Counsel
Purchaser shall have received an Opinion of Counsel, dated as of
Closing from CMS's counsel, in form and substance as set forth at Attachment O.
Purchaser may waive any condition specified in this Article XI, by
executing a statement to that effect at or prior to Closing.
ARTICLE XII - ENVIRONMENTAL CONDITION
12.1 Existing Condition
The Subject Property and the Terra Property have been utilized by CMS,
Terra and/or its Subsidiaries and possibly others for the purposes of
exploration, development, production and transportation of oil and gas.
Purchaser acknowledges that wastes and products, including, but not limited to,
crude oil, natural gas, natural gas liquids, produced water, and other wastes
associated with oil and gas production and exploration operations, may have been
spilled, released or disposed of on-site by, among other ways, placement in
pits, burial, land farming, land spreading and underground injection, into or
onto the Subject Property and the Terra Property. Purchaser acknowledges that
some oilfield production equipment located on the Subject Property and the Terra
Property may contain asbestos
42
or naturally-occurring radioactive material ("NORM"). Purchaser expressly
understands that NORM may affix or attach itself to the inside of wells,
materials and equipment as scale or in other forms, and that wells, materials
and equipment located on the Subject Property and the Terra Property may contain
NORM and that NORM-containing materials may be buried or have been otherwise
disposed of on the Subject Property and the Terra Property. Purchaser also
expressly understands that special procedures may be required for the removal
and disposal of asbestos and NORM from the equipment and the Subject Property
and the Terra Property where it may be found.
Attachment P contains a list of those portions of the Subject
Property, the Terra Property and other properties for which CMS has
responsibility or liability which, to the Knowledge of CMS constitute a
"Facility", as defined in 1994 PA No. 451, Sec. 20101(o), and discloses the
general nature and extent of any release. Attachment P is intended to, and
shall constitute notice to Purchaser of the existence of any such Facility, as
may be required by 1994 PA No. 451, Sec. 20116. In the event the transaction
contemplated by this Agreement proceeds to closing, then as of the Effective
Date Purchaser shall assume all responsibility and all liability of CMS with
respect to all Environmental, Health and Safety Requirements relating to the
Facilities listed at Attachment P, and Purchaser agrees to release, defend,
indemnify and hold CMS, its parent, affiliate and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees and agents,
harmless from and against any and all Claims and Adverse Consequences of
whatsoever kind and nature arising out of the matters identified at Attachment
P.
12.2 Environmental Assessment and Access
(a) For the purposes of this Agreement, an "Environmental
Assessment" shall mean the right to enter upon and within the Subject
Property and the Terra Property, and to inspect the structures and
improvements thereon. An Environmental Assessment shall be a Phase I
environmental review only, which shall only consist of (i) a review
and assessment of the adequacy of CMS's or Terra's existing permits
for the Subject Property and the Terra Property; (ii) a review of
historic data to determine prior land uses; (iii) a compilation of
pertinent information related to the Subject Property and the Terra
Property, including interpretation of analytical data in the files
referenced in Section 1.1(h), above, except any such information which
CMS considers to be confidential or proprietary or which CMS or Terra
is prohibited from disclosing due to third party restrictions unless
such information is directly related to the condition, quality or
quantity of the Subject Property or the Terra Property; (iv) a
physical examination of the Subject Property and the Terra Property to
identify potential contaminant sources; and (v) surveys to locate the
boundaries of the Subject Property and the Terra Property.
43
(b) Environmental Assessment shall not include soil boring,
collection of samples or analysis of any material on the Subject
Property and the Terra Property without the express written consent of
CMS. If Purchaser performs any borings, collects samples or performs
analysis of material, Purchaser shall assume all liability of the
results, generation of wastes and disposal of any material generated.
Purchaser shall release, defend, indemnify and hold CMS its parent,
affiliate and subsidiary corporations, as well as CMS's officers,
directors, shareholders, employees and agents harmless from, against
and in respect of any and all Claims created by or associated with
boring, sampling or analysis.
(c) Following execution of this Agreement, and upon reasonable
notice to CMS, Purchaser shall have the right, until fifteen (15)
business days preceding the Closing Date, to conduct or have conducted
an Environmental Assessment of the Subject Property and the Terra
Property at its sole cost, risk and expense. Purchaser shall provide
CMS a copy of the Environmental Assessment, including any reports,
data and conclusions prior to Closing. CMS agrees to provide
Purchaser with reasonable access to the Subject Property and the Terra
Property to conduct the Environmental Assessment. CMS shall have the
right to require Purchaser to conform to CMS's safety and industrial
hygiene procedures in the performance of the Environmental Assessment.
(d) In the event Purchaser's Environmental Assessment reveals a
demonstrable violation of any Environmental, Health or Safety
Requirements (other than those matters disclosed at Attachment P),
then Purchaser shall so notify CMS in writing, no later than fifteen
(15) business days prior to Closing. In the event that Purchaser
timely and properly asserts a violation of any Environmental, Health
or Safety Requirements, such violation shall be resolved in accordance
with the procedure contained in Section 17.1(d), below, or CMS, at its
sole and exclusive option, may elect to exclude the affected portion
of the Subject Property or the Terra Property, from the transaction
contemplated by this Agreement with a corresponding downward
adjustment to the Purchase Price in an amount equal to the allocated
value of the affected portion of the Subject Property or the Terra
Property, as reflected at Attachment H. In the event a portion of the
Terra Property is excluded from the transaction contemplated by this
Agreement, CMS shall cause Terra to assign all of its right, title and
interest in the affected portion of the Terra Property to CMS, at or
prior to Closing.
12.3 Release and Indemnity for Environmental Conditions
Purchaser understands that upon Closing the conveyance and assignment of
the Subject Property and the Terra Property will be on an "AS IS" and "WHERE IS"
basis, "WITH ALL FAULTS".
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Purchaser shall assume and discharge any and all liabilities with respect to
Environmental, Health and Safety Requirements relating to the ownership or
operation of the Assets and the Terra Assets whether arising before or after the
Effective Date, except as follows:
(i) Purchaser assumes no liability with respect to Environmental Health
and Safety Requirements unless and until Closing occurs; and
(ii) Except as qualified by Section 18.1, below, Purchaser assumes no
liability with respect to any matters which constitute a breach of
the representations and warranties of CMS contained in Section 4.8
and Section 6.12 , above.
Subject to the provisions of Article XVIII below, as to all other
Environmental, Health and Safety Requirements, Purchaser hereby releases and
shall and does hereby covenant and agree to defend, indemnify and hold CMS, its
parent, subsidiary and affiliate corporations, and CMS's and their officers,
directors, employees and agents harmless from and against any and all Claims and
Adverse Consequences with respect to or related in any manner to any and all
Environmental, Health and Safety Requirements of, or any other condition of the
Subject Property or the Terra Property existing either before or after the
Effective Date or Closing Date. Purchaser agrees that the indemnity provision
of this Section 12.3 shall apply regardless of whether CMS or Terra was wholly
or partially, actively or passively, negligent or otherwise at fault, and
whether or not the Claim or Adverse Consequence is based on a theory of
negligence, negligence per se, strict liability, willful misconduct, products
liability, premises liability or other theory of liability as to the applicable
indemnitee or others.
12.4 Confidentiality, Release and Indemnity For Environmental Assessment
Purchaser agrees that any data, the results of any analysis of data or
information acquired pursuant to the Environmental Assessment shall be deemed to
be Confidential Information subject to the provisions of Section 22.10, below.
Purchaser will not disclose the data, analysis or information to any person or
agency without the prior written approval of CMS. Purchaser waives and releases
all Claims against CMS, its parent, subsidiary and affiliate corporations, and
CMS's and their directors, officers, employees and agents, and to the extent CMS
or Terra may have any liability or duty of contribution, CMS's and Terra's
working interest owners, partners or joint venturers in the Subject Property and
the Terra Property, for any injury to, disease of, or death of persons, or
damage to or loss of property arising in any way from the exercise of
Purchaser's right to conduct the Environmental Assessment, or activities of
Purchaser or its employees or agents on the Subject Property and the Terra
Property while conducting the Environmental Assessment. Purchaser shall defend,
indemnify and hold harmless CMS, its parent, subsidiary and affiliate
corporations, and CMS's and their directors, officers, employees and agents, and
to the extent CMS or Terra may have any liability or duty of
45
contribution, CMS's and Terra's lessors, co-lessees, co-working interest owners,
joint venturers and partners in the Subject Property and the Terra Property
(insofar only as CMS or Terra may be obligated to such lessors, co-lessees, co-
working interest owners, joint venturers and partners), harmless from and
against any and all Claims and Adverse Consequences whatsoever, and any and all
statutory or common law liens or other encumbrances for labor or materials
furnished in connection with the Environmental Assessment, and the disposition
of any samples or wastes generated by the Environmental Assessment. Purchaser
agrees that it shall be considered to be the sole generator of any wastes or
samples generated by the Environmental Assessment, and that it shall comply with
all applicable federal, state or local governmental laws, rules, regulations and
ordinances in conducting the Environmental Assessment.
12.5 Insurance for Environmental Assessment
Purchaser shall obtain and maintain comprehensive public liability and
property damage insurance for the performance of the Environmental Assessment by
Purchaser or its contractor or other agents, or for purposes of obtaining
physical access to any of the Subject Property and the Terra Property, or for
any other purpose prior to Closing. The insurance shall: (i) be obtained from
and maintained with an insurer acceptable to CMS; (ii) shall have limits of not
less than one million dollars ($1,000,000) per occurrence for death or injury
and property damage, and five hundred thousand dollars ($500,000) for workers
compensation; (iii) cover Purchaser's obligations under the indemnity provisions
of this Article XII and Section 16.3; (iv) shall be occurrence-based insurance;
(v) shall name CMS as an additional insured; (vi) shall contain a waiver of
subrogation rights as to CMS; and (vii) shall contain a provision pursuant to
which the insurer agrees not to cancel or modify the insurance coverage without
furnishing at least thirty (30) days' prior written notice to CMS. Prior to the
exercise of any right to gain access to the Subject Property and the Terra
Property, Purchaser shall furnish CMS a certificate evidencing the existence of
the insurance required pursuant to this Section 12.5.
12.6 Indemnity Regarding Access
Purchaser hereby releases and shall and does hereby covenant and agree
to defend, indemnify and hold CMS, Terra and its Subsidiaries, its parent,
subsidiary and affiliate corporations, and CMS's and their officers, directors,
employees and agents, and to the extent CMS or Terra may have any liability or
duty of contribution, CMS's and Terra's lessors, co-lessees, co-working interest
owners, partners and co-venturers (insofar only as CMS or Terra may be obligated
to such lessors, co-lessees, co-working interest owners, joint venturers or
partners) in the Subject Property and the Terra Property, harmless from and
against any and all Claims and Adverse Consequences in connection with personal
injuries, including death, or property damage or loss arising out of or relating
to access to the Subject Property or the Terra Property by Purchaser, its
officers, directors, employees, agents and representatives to inspect the
Subject Property and the Terra Property, including access to the Subject
Property and the Terra Property for performing an Environmental
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Assessment. This indemnity obligation includes any access to the Subject
Property and the Terra Property prior to Purchaser's execution of this
Agreement, up through the later of the Closing Date and the date upon which CMS
relinquishes operatorship of any of the Assets or the Terra Assets, for any
purpose relating to the acquisition or proposed acquisition by Purchaser of the
Assets and the Terra Assets. The indemnity obligations of Purchaser under this
Section 12.6 shall survive the Closing or termination of this Agreement.
ARTICLE XIII - TITLE EXAMINATION
13.1 Title Examination Period
Following execution of this Agreement, Purchaser shall have until July 31,
2000 (the "Extended Due Diligence Period") to complete, at Purchaser's sole
cost, risk and expense, all title examinations of the Subject Property and the
Terra Property. On or before the expiration of the Extended Due Diligence
Period, Purchaser shall deliver written notice to CMS ("Claim of Title Defect")
of any claim that CMS's or Terra's title within the presently producing
formations of the Subject Property and the Terra Property is less than
"Defensible Title," as defined in Section 13.6, below. The Claim of Title Defect
shall detail the specific portion(s) of the Subject Property or the Terra
Property affected, and specify any "Title Defect" (as defined at Section 13.8)
which causes title to the specific portion of the Subject Property or the Terra
Property to be less than Defensible Title. Such written notice shall specify all
available information, including but not limited to the action Purchaser deems
necessary for CMS, if it so elects, to cure title so as to allow CMS to deliver
Defensible Title. Any Title Defect as to which Purchaser does not assert a Claim
of Title Defect to CMS within the Extended Due Diligence Period, shall be deemed
waived for all purposes. Purchaser shall be solely responsible for any costs of
title examination, title curative actions (other than those referenced in
Section 13.2, below), landman or broker fees, document preparation and of any
inspections it undertakes, and CMS shall not have to create, update or
supplement any title documents, such as abstracts of title or title opinions, in
its possession. Purchaser will not be given access to data and records which CMS
considers to be proprietary or confidential to it, or which CMS or Terra cannot
legally provide Purchaser because of third party restriction on CMS or Terra,
unless such data or records are directly related to the condition, quality or
quantity of the Subject Property or the Terra Property. During the Extended Due
Diligence Period CMS may deliver written notice to Purchaser claiming upward
adjustments, in accordance with Section 3.3(b), below, as the result of the
interest of CMS in a specific portion of the Subject Property or the Terra
Property being greater than that set forth at Attachment A.
13.2 Cure of Title
CMS shall review any Claim of Title Defect submitted in accordance
with Section 13.1, above, with the option (at CMS's sole cost and expense) of
curing any Title Defect properly identified in the Claim of Title Defect. CMS
shall also have the
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option, but not the obligation to indemnify Purchaser or bond over any alleged
Title Defect, in an amount equal to the diminishment in value of the affected
portion of the Subject Property or the Terra Property caused by such Title
Defect determined in accordance with Section 13.4. If CMS so elects to indemnify
Purchaser or bond over a Title Defect, then Purchaser shall take or retain title
to the affected portion of the Subject Property or the Terra Property, subject
to the Title Defect, without any downward adjustment to the Purchase Price.
13.3 Title Adjustments
(a) Downward Adjustment. If on or before September 30, 2000, CMS
-------------------
shall not have cured any Title Defect affecting the Subject Property
or the Terra Property for which a Claim of Title Defect was properly
and timely made, and CMS has elected not to indemnify Purchaser
against or bond over the alleged Title Defect, then subject to Section
13.5, below, CMS shall pay to Purchaser an amount equal to the
diminishment in value represented by such Title Defect, determined in
accordance with Section 13.4,below.
(b) Upward Adjustment. If on or before September 30, 2000, the
-----------------
Parties shall determine that, (i) CMS or Terra owns a greater net
revenue interest than is set forth at Attachment A as to the oil and
gas produced, saved and marketed from the presently producing
formations in any of the individual producing well(s) or unit(s)
described at Attachment A, (ii) CMS or Terra owns a greater net
revenue interest, as to all unitized, pooled or communitized
substances presently producing from the applicable unitized, pooled,
or communitized formation(s) within the applicable unitized, pooled or
communitized area(s) allocated to any of the interest(s) set forth at
Attachment A, or (iii) CMS's or Terra's share of expenses or burdens
attributable to the oil and gas produced, saved and marketed from the
presently producing formations in any of the individual producing
well(s) or unit(s) described at Attachment A is less than shown at
Attachment A, without a corresponding reduction in CMS's or Terra's
net revenue interest, then CMS shall send written notice thereof to
Purchaser prior to September 30, 2000. The notice shall state the
specific interest(s) affected and indicate the amount of increase to
the net revenue interest, or decrease in the expenses or burdens, and
specify the reason(s) for the upward adjustment. The Purchase Price
shall be adjusted upward by, or Purchaser shall pay to CMS, the
increased value of the Assets and the Terra Assets as a result of the
increased net revenue interest, or decreased expenses or burdens,
determined consistent with Section 13.4, below. In determining
whether an upward adjustment is called for under this Section 13.3(b),
neither CMS nor Terra shall be deemed to own an interest that such
party holds for the benefit of a third party.
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Any downward or upward adjustment may be accounted for in the Final
Settlement Statement, in the manner provided in Section 16.1, below.
13.4 Value of Title Adjustments
The diminishment in value of the Assets or the Terra Assets resulting
from an asserted Title Defect, as well as the amount of any and all upward
adjustments provided for by Section 13.3(b), above, shall be consistent with the
following:
(a) If a Title Defect is a valid and enforceable lien, encumbrance
or other charge, which is liquidated in amount, the value of the
downward adjustment in the Purchase Price shall be the sum
necessary to be paid to the lienholder to remove the Title
Defect from the portion of the Subject Property or the Terra
Property affected by the Title Defect.
(b) If a Title Defect represents an obligation or burden upon the
Subject Property or the Terra Property for which the economic
detriment to Purchaser is not liquidated but can be estimated
with reasonable certainty, the value of the downward adjustment
in the Purchase Price shall be a sum necessary to compensate
Purchaser for the present value of the adverse economic effect
which the Title Defect will have on the Subject Property or the
Terra Property.
(c) A lien or encumbrance in the form of a judgment secured by a
supersedeas bond or other security approved by the court issuing
the judgment shall not be considered a Title Defect and no
adjustment to the Purchase Price will be made.
(d) If the Title Defect proves CMS or Terra owns a lesser net
revenue interest than that shown at Attachment A, or a greater
working interest than that shown at Attachment A, without a
corresponding proportionate increase in the net revenue interest
attributable to an interest in an oil and gas lease, the amount
of the downward adjustment to the Purchase Price shall be the
value of the decrease in the net revenue interest or increase in
the working interest, consistent with the allocations of value
set forth at Attachment H, which is allocated to the applicable
interest in an oil and gas lease(s) affected by the Title
Defect.
(e) Subject to Section 13.5, below, in no event shall the value of
any Title Defect alleged by Purchaser exceed the value
attributed to the interest affected, as set forth on
Attachment H.
(f) If it is determined that there is an upward adjustment in
accordance with Section 13.3(b), above, the amount of the upward
adjustment to the Purchase Price shall be the value of the
increase in the net revenue interest or decrease in the working
interest, consistent with the allocations of value set forth at
Attachment H,
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which is allocated to the applicable interest in an oil and gas
lease(s) affected.
13.5 Limits on Title Adjustments
Any other provisions of this Agreement to the contrary notwithstanding
in the event the total cumulative title adjustments do not exceed the sum of
three hundred thousand dollars ($300,000.00), there shall be no adjustment to
the Purchase Price for Title Defects, and in no event shall any adjustment be
made for the first $300,000.00 in Title Defects alleged by Purchaser, or upward
adjustment due CMS, regardless of whether the cumulative downward or upward
adjustment exceeds that amount. Further, neither CMS nor Purchaser shall assert
any Title Defects or upward adjustments provided for in this Article XIII, the
value of which, determined in accordance with Section 13.4, above, and
Attachment H, is ten thousand dollars ($10,000.00) or less.
13.6 Definition of Defensible Title
The term "Defensible Title" shall have the meaning as follows: (i) as
to each interest in an oil and gas lease, (or if any such lease is included in a
production unit, then as to such unit) comprising the Assets or the Terra
Assets, Defensible Title is that which entitles CMS or Terra on a leasehold
basis to receive not less than the net revenue interest set forth at Attachment
A for all oil and gas produced, saved and marketed from the presently producing
formations in the Subject Property and the Terra Property as of the Effective
Date; (ii) as to each interest in an oil and gas lease (or if any such lease is
included in a production unit, then as to such unit) comprising the Assets or
the Terra Assets, Defensible Title is that which obligates CMS or Terra on a
leasehold basis to bear costs and expenses relating to the maintenance,
development and operation of the producing wells and units on leased lands and
depths not exceeding the working interest described at Attachment A as of the
Effective Date; and (iii) as to the Assets and the Terra Assets, Defensible
Title is that which as of the Effective Date is marketable title, and as to
those portions of the Assets and Terra Assets which constitute interests in real
property, marketable record title, free and clear of material encumbrances,
liens and defects, other than Permitted Encumbrances, as defined below.
13.7 Definition of Permitted Encumbrances
The term "Permitted Encumbrances" shall include all of the conditions
of title contained in this Section 13.7 as follows:
(a) Permitted Encumbrances include lessors' royalties, overriding
royalties, reversionary interests and similar burdens on any
leasehold working interests described at Attachment A, if the
net cumulative effect of the burdens does not operate to reduce
CMS's or Terra's interest in all oil and gas produced from the
leasehold interests below the net revenue interest on a
leasehold basis as set forth at Attachment A;
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(b) Permitted Encumbrances include division orders and sales
contracts terminable without penalty upon no more than ninety
(90) days' notice to the purchaser;
(c) Permitted Encumbrances include unexercised preferential rights
to purchase, which have been waived or for which the time to
exercise has expired, required third party consents to
assignments, which have been waived or obtained, and similar
agreements;
(d) Permitted Encumbrances include materialmen's, mechanics',
operators', co-working interest owners', repairmen's,
employees', contractors', tax and other liens and charges,
arising in the Ordinary Course of Business, which have not been
filed in compliance with statutes, or, if filed, have not become
delinquent or payment is being withheld as provided by law or
agreement or the validity of which is being contested in good
faith by appropriate action, encumbrances, contracts,
agreements, instruments, and obligations, affecting the Assets
or the Terra Assets arising in the Ordinary Course of Business;
(e) Permitted Encumbrances include all rights to, consent by,
required notices to, filings with or other actions by
governmental entities in connection with the sale or conveyance
of oil and gas leases or interests which are customarily
obtained subsequent to the sale or conveyance;
(f) Permitted Encumbrances include easements, rights-of-way,
servitudes, permits, surface leases and other rights for surface
operations, pipelines, grazing, logging, canals, ditches,
reservoirs or similar surface uses, conditions, covenants or
other restrictions, easements for streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights-of-way, on, over or in respect of any of
the Subject Property or the Terra Property;
(g) Permitted Encumbrances include all rights reserved to or vested
in any governmental, statutory or public authority to control or
regulate any of the Assets or the Terra Assets in any manner,
and all applicable laws, rules and orders of governmental
authority;
(h) Permitted Encumbrances include any Title Defects which Purchaser
may have expressly waived in writing or which are deemed to have
been waived under this Agreement;
(i) Permitted Encumbrances include any production imbalances and
pipeline imbalances;
(j) Permitted Encumbrances include (whether or not recorded), all
leases, unit agreements, communitization agreements, pooling
agreements, governmental orders and other contracts and
agreements, to which CMS or Terra is a party, or to which CMS or
Terra or the Assets or the Terra Assets are subject, and all
assignments of the Subject Property or the Terra Property, and
all
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required consents or rights of reassignment provided for by any
of the foregoing, to the extent the same do not operate to
reduce CMS's or Terra's net revenue interest below that
specified at Attachment A, or to increase the obligations of CMS
or Terra to bea r costs and expenses in excess of the working
interest specified at Attachment A, without a corresponding
increase in the net revenue interest. Permitted Encumbrances
does not include mortgages, liens or encumbrances other than
those that are the subject of Section 13.7(d), above.
13.8 Definition of Title Defect
The term "Title Defect" means any material encumbrance, encroachment,
irregularity, defect in or objection to CMS's or Terra's title to the Subject
Property and the Terra Property listed at Attachment A which, alone or in
combination with other defects, renders CMS's or Terra's title to the Subject
Property or the Terra Property less than Defensible Title. In determining
whether an encumbrance, encroachment, irregularity, defect in or objection to
title is material, due consideration shall be given to the length of time that
the interest involved has been, is or is considered to be in "Pay Status" and
whether the Title Defect is of the type expected to be encountered in the area
involved and is customarily acceptable to prudent operators and interest owners.
An interest shall be considered to be in Pay Status when payment is being made,
whether by CMS, Terra or its Subsidiaries or by a third party, for the
production from or that is otherwise allocated to the Subject Property or the
Terra Property without indemnity from CMS or Terra, except indemnity customarily
made in division orders, transfer orders, product purchase agreements and
similar documents governing the payment of proceeds from production. Title
Defects, which are not material, include, without limitation, defects that have
been cured by possession under applicable statutes of limitation, defects in the
early chain of title such as failure to recite marital status in documents,
omission of heirship or succession proceedings, lack of survey, failure to
record releases of oil and gas leases, failure to obtain subordination of a
lessor mortgage to an oil and gas lease, liens, production payments or mortgages
that have expired of their own terms, matters which are deemed remedied, cured
or otherwise satisfied by the remedial effects of the Michigan Forty Year
Marketable Title Act (MCL 565.101 to 565.109, inclusive; MSA 26.1271 to 26.1279,
inclusive), and matters that are not reasonably expected to result in claims
adversely affecting CMS's or Terra's title to the Subject Property or the Terra
Property. The term Title Defects does not include Permitted Encumbrances.
Matters which occur during the Interim Period and which result in a reduction in
the net revenue, or an increase in the working interest without a corresponding
increase in net revenue interest of CMS or Terra in and to a portion of the
Assets or Terra Assets from that which is shown at Attachment A shall not form
the basis for the assertion of a Title Defect, and shall be deemed Defensible
Title to the affected Asset or Terra Assets, if such matter is the result of an
event or occurrence which is in the Ordinary Course of Business, or is beyond
the control of CMS or Terra.
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13.9 Back-In Interest Adjustments
For purposes of this Section 13.9 the term "Reserve Report" means the
report entitled "Estimated Future Reserves And Income Attributable To Certain
Leasehold And Royalty Interests Beginning January 1, 2000", bearing date of
October 25, 1999, prepared by Ryder Scott Company for CMS, which was made
available to Purchaser. Among other things, the Reserve Report specifies the
Expense Interest (working interest) and the Revenue Interests (net revenue
interests) of CMS and/or Terra in the various individual producing wells and
units, and the various unitized, pooled or communitized areas or units that
comprise the Assets and the Terra Assets, these being the same wells, units and
areas described at Attachment A1 ("Constituent Property or Properties"). The
Reserve Report reflects the Expense Interest and Revenue Interests of CMS and/or
Terra in each Constituent Property at two points in time. The "Initial"
interest is that owned as of January 1, 2000. The "Final" interest, if
different than the Initial interest, reflects an increase or decrease that will
occur at an unspecified time in the future as the result of the provisions of
applicable contracts. The Parties acknowledge and agree that the Reserve Report
valuation is a function of both the Initial and Final Interests.
For purposes of this Section 13.9, the term "Back-In Interests" means,
with respect to a particular Constituent Property, the working and net revenue
interests actually owned by CMS and/or Terra which correlate to the Final
interests shown on the Reserve Report. Notwithstanding anything in Article XIII
to the contrary, the Parties acknowledge and agree that if it is determined by
either Party, within the Extended Due Diligence Period, that the Back-In
Interests owned by CMS and/or Terra in a given Constituent Property vary from
the Final interests as represented in the Reserve Report, such variance shall
constitute a Title Defect if the Reserve Report reflects a larger Final Revenue
Interest than the amount of the Back-In Interests) or the basis for an upward
adjustment in accordance with Section 13.3(b), above, (if the Reserve Report
reflects a smaller Final Revenue Interest than the amount of the Back-In
Interest) for which a corresponding title adjustment will be made, whether
upwards or downwards, in accordance with the remaining provisions of this
Section 13.9.
A Title Defect asserted under this Section 13.9 with respect to a Back-In
Interest, shall be subject to the same limitations and requirements imposed by
Section 13.1, above,
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shall be subject to the right of CMS to cure, indemnify against or bond over, in
accordance with Section 13.2, above, and both Title Defect adjustments and
upward adjustment shall be subject to the same limitations as imposed by Section
13.5, above; provided, however, that in the event of conflict this Section 13.9
shall govern and control. The value of any title adjustment, for any Title
Defect or upward adjustment asserted under this Section 13.9 with regard to a
Back-In Interest, shall be negotiated by the Parties in good faith. In
negotiating the value of any resulting title adjustment, among other things, the
Parties shall consider and take into account the provisions of Sections 13.3 and
13.4, above; provided, however, that the basis for any title adjustment made
with respect to a Back-In Interest, in accordance with this Section 13.9, shall
be the value attributed to the particular Constituent Property by the Reserve
Report, reduced by applying a fraction having a numerator of 161,241,694 and a
denominator of 177,337,178.
13.10 Representations, Warranties or Covenants, and Indemnity
The provisions of this Article XIII shall be deemed to be, and shall
constitute representations, warranties and covenants of title by CMS that will
continue until the expiration of the Extended Due Diligence Period and as to
Title Defects timely and properly asserted, thereafter as provided below.
Subject to the limitations contained in Section 13.5, above, CMS hereby
covenants and agrees to defend, indemnify and hold Purchaser harmless from and
against any and all Claims with respect to or related in any manner to any and
all Title Defects for which Purchaser has timely and properly delivered a Claim
of Title Defect to CMS, consistent with Sections 4.13, 6.16 and 13.9, above, as
qualified by Section 18.1, below. Any and all such representations and
warranties of CMS relating to any and all title matters shall expire and be of
no further force and effect from and after the later of (i) the end of the
Extended Due Diligence Period or (ii) such time as a Title Defect for which a
Claim of Title Defect is properly and timely asserted, is cured, CMS indemnifies
Purchaser, CMS bonds over the Title Defect or a title adjustment is made in
accordance with Section 13.3(a), above. If a Title Defect adjustment is made
pursuant to Section 13.3(a), above, or CMS indemnifies or bonds over a Title
Defect, pursuant to this Article XIII, it shall be Purchaser's sole remedy for
any such Title Defect. All of the Assets and the Terra Assets for which CMS
indemnifies Purchaser or bonds over, shall be transferred to Purchaser at
Closing, and shall be retained by Purchaser after the expiration of the Extended
Due Diligence Period. As to all Assets or Terra Assets for which a Title Defect
adjustment is made, CMS shall be entitled to a conveyance from Purchaser, and
Purchaser hereby agrees to convey to CMS, in recordable form, free and clear of
any liens or claims of Purchaser, or any Person claiming through Purchaser, the
Asset(s) or Terra Asset(s), or portion of either affected by the asserted Title
Defect if the asserted Title Defect consists of failure of title to the Asset or
the Terra Asset, or a portion thereof. CMS shall not be entitled to a
conveyance of the affected Asset or
54
Terra Asset if the asserted Title Defect is in the nature of a mortgage, lien or
other encumbrance which may be cured by the payment of a determinable sum of
money. The instruments of conveyance (to be recorded in the applicable county
records) shall not include references to the specific working interest,
overriding royalty or the net revenue interest conveyed or assigned per the
terms of this Agreement, nor shall such instrument or conveyance contain any
warranty of title, but they shall reference and be made subject to the terms of
this Agreement, and the terms of the letter agreement referenced in Section
15.2(b), below. Anything to the contrary contained herein notwithstanding, all
Title Defects not timely raised by Purchaser shall be deemed waived for all
purposes, and Purchaser shall have no recourse as against CMS from and after the
expiration of the Extended Due Diligence Period. In the event an adjustment to
the Purchase Price is made in the Final Settlement Statement pursuant to this
Article XIII, or a Title Defect is otherwise deemed waived, Purchaser shall have
no further rights or remedies against CMS with respect to any Title Defect,
other than a claim pursuant to an indemnity or bond of CMS.
13.11 Arbitration
In the event that the Parties are unable, after good faith negotiations,
to resolve any disagreement with respect to any asserted Title Defect, or any
proposed adjustment provided for in this Article XIII, then the Parties agree to
resolve all such disagreements through binding arbitration. Each Party shall
select an arbitrator with experience evaluating oil and gas title matters, and
the arbitrators shall select a third such arbitrator, to arbitrate any such
unresolved disputes in accordance with the rules of the American Arbitration
Association. The decision of the arbitrators shall be binding on the Parties,
and their successors and assigns.
ARTICLE XIV - RETAINED LIABILITIES
Attachment D lists all wells, litigation and other matters relating to
the Assets and the Terra Assets which constitute the Retained Liabilities. CMS
shall retain responsibility and liability for, and authority and control over
the Retained Liabilities and all actions, which, in its sole discretion are
necessary or desirable related to the Retained Liabilities, including but not
limited to the prosecution, defense, settlement or other resolution of those
matters constituting litigation, and shall be solely responsible for all costs
associated therewith. Purchaser shall and does hereby grant CMS, its officers,
directors, employees, agents and attorneys, access to and use of the Assets and
Terra Assets, including, but not limited to the Subject Property and the Terra
Property, and the records referenced in Section 1.1(h), above, for any and all
purposes related to the Retained Liabilities.
CMS hereby covenants and agrees to defend, indemnify and hold Purchaser
harmless from and against any and all Claims and
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Adverse Consequences with respect to the Retained Liabilities, insofar only as
the event that forms the basis of the Claims or Adverse Consequences arose or
occurred prior to the Effective Date. Notwithstanding the foregoing, the
preceding indemnity provision shall survive until the event giving rise to the
Claim or Adverse Consequences is resolved.
ARTICLE XV - CLOSING
15.1. Time and Place of Closing
If the conditions of Closing referenced in Article X and Article XI, have
been satisfied or waived, the consummation of the transaction contemplated
hereby (the "Closing") shall be held on or before the 31st day of March, 2000
(the "Closing Date") at CMS's offices in Houston, Texas, unless otherwise
mutually agreed in writing between the parties.
15.2 Closing Obligations
CMS and Purchaser shall each be required to perform the various
activities described in this Section 15.2 as follows:
(a) CMS shall execute, acknowledge and deliver an assignment and such
other instruments as may be necessary to convey title to the Subject
Property to Purchaser, without warranty or covenant of title (in
sufficient counterparts to facilitate recording and governmental
consents and filings), in substantially the form of Attachment Q
attached hereto and made a part hereof, and shall execute and
deliver any applicable official federal and state assignment forms
in sufficient numbers to meet applicable governmental requirements;
(b) The Parties shall execute an agreement in substantially the form of
Attachment R, setting forth their agreement as to CMS's limited
warranty of title consistent with Section 13.10, above;
(c) CMS shall endorse and deliver to Purchaser the Terra Shares;
(d) CMS shall execute such other instruments and take such other
actions as may be necessary to carry out its obligations under this
Agreement;
(e) CMS, in conjunction with and after reasonable consultation with
Purchaser, shall prepare and present to Purchaser within four (4)
business days prior to Closing, a closing statement in accordance
with GAAP containing all of the adjustments to the Purchase Price
called for by this Agreement (the "Closing Statement"). The final
Closing Statement shall fairly represent adjustments proposed in
good faith by both Parties;
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(f) Purchaser shall pay CMS the Purchase Price or Adjusted Purchase
Price, as the case may be, as set forth in the Closing Statement, by
wire transfer of funds in United States dollars, pursuant to written
instructions delivered by CMS;
(g) CMS shall endorse and deliver the QRI Stock to Purchaser;
(h) CMS shall deliver to Purchaser the Opinion of Counsel referenced
in Section 11.5, above;
(i) Purchaser shall deliver to CMS the Opinion of Counsel referenced
in Section 10.5, above;
(j) Purchaser shall execute and acknowledge the assignment, and any and
all official federal and state assignment forms, and shall execute
such other instruments and take such other actions as may be
necessary to carry out its obligations under this Agreement;
(k) If Purchaser assumes operatorship of any of the Subject Properties,
and to the extent required for the continued operations by Terra of
the Terra Property, Purchaser shall execute the necessary documents,
such as change of operatorship forms and sundry notices, and shall
post all requisite bonds, in sufficient numbers and amounts for
filing with government officials. During the period of time between
Closing and receipt of all approvals by the State of Michigan
Geological Survey Division-Department of Environmental Quality (GSD-
DEQ) and others, necessary to complete the change of operatorship,
Purchaser agrees to execute any required documentation and to
perform and be responsible for any environmental remediation or
other action required by the GSD-DEQ to obtain such approval. This
provision shall exclude any Environmental, Health and Safety
Requirements addressed in accordance with Article XII. Purchaser
shall bear the risk of loss, and shall be responsible for all loss,
cost, damage and expense which result from operations during the
period prior to receipt of all approvals necessary to effectuate a
change in operatorship of the Subject Property and responsibility
for Terra's continued operation of the Terra Property. Purchaser
shall defend, indemnify and hold CMS, its parent, affiliate and
subsidiary corporations, as well as CMS's and their officers,
directors, shareholders, employees and agents, harmless from and
against any and all Claims arising out of or in any manner related
to operations during the period from the Effective Date to CMS's
relinquishment of, and Purchaser's actual assumption of
operatorship. Purchaser agrees to take assignments of State of
Michigan well permits for those portions of the Subject Property and
the Terra Property which are operated by CMS, in the name of
Purchaser or its designee, other than Terra;
(l) CMS and Purchaser shall execute, acknowledge and deliver any
transfer orders or letters in lieu thereof
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directing all purchasers of production to pay Purchaser all proceeds
attributable to production from or allocable to the Subject
Property;
(m) If CMS is responsible for the disbursement of proceeds of production
from or allocable to the Subject Property to third parties after the
Transfer Date (or is so responsible on behalf of Terra with respect
to the Terra Property), and if Purchaser requires additional time
after the Closing to assume this responsibility from CMS, CMS and
Purchaser shall enter into a letter agreement in the form of
Attachment S to avoid any interruption in the payments to third
parties and the filing of any governmental reports as the result of
the sale of the Assets. The terms of the letter agreement will
provide for CMS to retain responsibility for disbursement of
proceeds for a period not to exceed sixty (60) days from the first
day of the month following the Closing Date. The letter agreement
shall provide for a rate of $50,000.00 per month to be paid to CMS
by Purchaser for CMS's services and shall provide that CMS shall not
be liable for any errors made. Purchaser shall defend, indemnify and
hold CMS harmless from and against any and all Claims, even though
caused by CMS's active or passive, sole or concurrent, negligence
arising from or relating to the services provided by CMS in making
the disbursements per the terms of the letter agreement;
(n) CMS shall cause the board of directors and officers of Terra to
resign, effective as of April 1, 2000, and shall deliver such
documents as may be required to evidence the resignations;
(o) At least seven (7) days prior to Closing, the Parties will use their
reasonable best efforts to deliver to each other a draft of their
proposed press releases to be issued immediately subsequent to
Closing. The Parties will use their reasonable best efforts to
review and approve, in writing, the other Party's press release
prior to Closing; and
(p) The Parties shall execute an agreement, in substantially the form of
Attachment T, setting forth their agreement as to the terms and
conditions of Purchaser's assumption of the Environmental, Health
and Safety Requirements with respect to the Facilities identified at
Attachment P.
15.3 Suspended Accounts
CMS shall transfer to Purchaser all suspended royalty, overriding
royalty and other payments out of production relating to the Subject Property
and the Terra Property which are held by CMS, and attributable to the period
prior to the Effective Date. Included in the Assets described in Section 1.1(h)
will be all files and records documenting and directly relating to all such
suspended accounts. Purchaser shall defend, indemnify and hold
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CMS harmless from and against any and all Claims relating to those suspended
accounts.
15.4 Termination of Guarantees and Other Commitments
Subject to applicable laws, as of the Closing Date, CMS shall terminate
or cancel the following: (i) all undertakings, guarantees, comfort letters by
CMS for itself or on behalf of Terra insofar as they relate to the Assets or the
Terra Assets, except for any undertaking with respect to the Assets or the Terra
Assets set forth in a letter agreement dated February 24, 1992 by and between
CMS and Midland Cogeneration Venture, which undertakings shall be a Retained
Liability; (ii) letters of credit, surety bonds and related indemnity agreements
insofar as they relate to the Assets or the Terra Assets; and (iii) all credit
card accounts, lines of credit and open accounts insofar as they relate to the
Assets or the Terra Assets.
ARTICLE XVI - CONTINUING OBLIGATIONS
16.1 Post-Closing Reconciliation
Not later than one hundred twenty (120) days after Closing, or at such
other date as CMS and Purchaser shall mutually agree upon in writing, CMS shall
issue a "Final Settlement Statement" for the Assets conveyed and assigned to
Purchaser, and for the Terra Assets. The Final Settlement Statement will net
actual revenues against royalties and other lease burdens, operating expenses,
taxes and overhead for the period subsequent to the Effective Date, and such
other adjustments as set forth in this Agreement. The Final Settlement
Statement will include a summary with appropriate supporting documentation. CMS
will accept only written inquiries regarding the Final Settlement Statement.
Within sixty (60) days of its receipt of the Final Settlement Statement,
Purchaser shall either make payment of all amounts due CMS, provide a written
request of payment from CMS of all amounts due Purchaser, or provide a written
statement setting forth those adjustments to which Purchaser objects. Any such
written statement will detail the specific reasons for such objection. In this
regard CMS agrees to provide Purchaser reasonable access to its personnel, files
and records, insofar as they relate to the matters addressed in the Final
Settlement Statement, subject to the limitations expressed in Section 6.11,
below. CMS shall have thirty (30) days from and after its receipt of
Purchaser's written list of objections to rebut same, in writing. If the
Parties are unable to resolve any disagreement with respect to any disputed
adjustment, after good faith negotiations, then the Parties agree to resolve any
disputed adjustment through binding arbitration. Each Party shall select an
arbitrator with a joint interest audit accounting background, and the
arbitrators shall select a third such arbitrator, to arbitrate any such
unresolved disputes in accordance with the rules of the American Arbitration
Association, with respect to the Final Settlement Statement.
16.2 Receipts and Credits
(a) All monies, proceeds, receipts, credits and income attributable to
hydrocarbon production, and other net
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income attributable to ownership of the Assets and the Terra Assets
for all periods of time fr om and after the Effective Date,
regardless of when collected, shall be the sole property and
entitlement of the Purchaser. To the extent received by CMS after
the Closing, CMS shall fully disclose, account for and promptly
transmit same to Purchaser;
(b) All monies, proceeds, receipts, credits and income attributable to
hydrocarbon production from the Subject Property and the Terra
Property for all periods of time prior to the Effective Date,
regardless of when collected shall be the sole property and
entitlement of CMS. To the extent received by Purchaser after the
Closing, Purchaser shall fully disclose, account for and promptly
transmit same to CMS;
(c) All of CMS's and Terra's proportionate share of operating costs and
expenses, for goods delivered and services rendered attributable to
the Assets and the Terra Assets for the period of time prior to the
Effective Date, regardless of when due or payable, shall be the sole
obligation of CMS. CMS shall promptly pay, or if paid by Purchaser,
promptly reimburse Purchaser for such operating costs and expenses
incurred prior to the Effective Date.
(d) All of the proportionate share of operating costs and expenses, for
goods delivered and services rendered attributable to the Subject
Property and the Terra Property for the period of time from and
after the Effective Date, regardless of when due or payable, shall
be the sole obligation of Purchaser. Purchaser shall promptly pay,
or if paid by CMS, promptly reimburse CMS for such operating costs
and expenses incurred by CMS on or after the Effective Date;
(e) CMS shall be entitled to retain all overhead charges and any and all
other fees, charges or reimbursements related to operations it has
collected, billed or which shall be billed or collected at any time,
for the operated portions of the Subject Property or the Terra
Property relating to the period from and after the Effective Date,
to the date on which CMS relinquishes operatorship, or
responsibility for Terra's operation of the Subject Property and the
Terra Property, even if after the Closing Date. Purchaser shall
immediately transfer to CMS any third party overhead charges and
other fees, charges or reimbursements related to operations, which
are collected by Purchaser, attributable to the operated portions of
the Subject Property and the Terra Property, for all periods prior
to the date on which CMS relinquishes operatorship;
(f) Costs or expenses attributable to non-consent penalties under any
contract, law, rule or regulation affecting the Assets or the Terra
Assets are deemed transferred with the Assets and are the sole
responsibility of the Purchaser.
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The obligations of the Parties to disclose, account for, transmit or reimburse
pursuant to subsections (a) - (e), above, shall be limited to the extent that
such items were not previously accounted for as an adjustment to the Purchase
Price.
16.3 Assumption of Obligations and Indemnities
If Closing occurs, Purchaser shall, from and after the expiration of
CMS's obligations with respect to any applicable representation or warranty of
CMS, assume and be solely responsible for the obligations and indemnities set
forth in this Section 16.3, which obligations and indemnities shall survive the
Closing.
(a) Purchaser hereby agrees and shall agree in the instruments assigning
or conveying the Assets, to take the Assets and the Terra Assets
subject to, and to assume, perform, pay for, and comply with all of
the express or implied duties, liabilities, and obligations, except
for the Retained Liabilities, binding upon CMS or Terra that relate
to or are attributable to the Assets and the Terra Assets, whether
existing before or after the Effective Date, including, but not
limited to, all of the following: all of the terms and conditions of
all applicable and valid recorded and unrecorded agreements,
contracts and instruments relating to the Assets and the Terra
Assets (including, but not limited to, those described at Attachment
A); all non-consent penalties under any contract, law, rule or
regulation affecting the Assets and the Terra Assets; all valid
unit, pooling, communitization and operating agreements; all
easements and rights-of-way; paying and accounting for and reporting
all lease rentals and all royalties, overriding royalties and other
oil and gas lease burdens; subject to Article XX, all reassignment
rights held by third parties; subject to Article XX all preferential
purchase rights held by third parties; and all duties imposed by all
valid governmental laws, rules, regulations and orders. Without
limiting the generality of the scope of the foregoing, except as to
wells which form a part of the Retained Liabilities, Purchaser
agrees to and shall assume, perform, pay for and comply with the
obligations (if any) of CMS to properly and timely plug and abandon
all wells now or hereafter located on or appurtenant to the Subject
Property and the Terra Property whether or not such wells are
producing, or are capable of producing hydrocarbons as of the
Effective Date, to properly and timely remove all buildings,
equipment and materials from the Subject Property and the Terra
Property upon cessation of use thereof, and to properly and timely
restore the surface of the Subject Property and the Terra Property
in accordance with all applicable governmental requirements and
agreements with third parties.
(b) Purchaser, and its heirs, successors, principals, officers,
directors and affiliates, shall defend,
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indemnify and hold CMS, its parent, affiliate and subsidiary
corporations, as well as CMS's and their officers, directors,
shareholders, employees and agents, harmless from and against any
and all Claims and Adverse Consequences of whatsoever kind or
nature, that relate to or are attributable to ownership or operation
of the Assets and the Terra Assets, except as to the Retained
Liabilities, whether the Claims arose before or after the Effective
Date, and whether or not the Claims have been specifically disclosed
by CMS to Purchaser prior to Closing, including, without limitation
in any manner by way of enumeration, Claims and Adverse Consequences
relating to the obligations assumed by Purchaser in Section 16.3(a),
above, and Claims and Adverse Consequences relating to the
operations and activities contemplated by Section 16.3(a), above.
(c) Purchaser, and its heirs, successors, principals, officers,
directors and affiliates, shall defend, indemnify and hold CMS, its
parent, affiliate and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees and agents,
harmless from and against any and all Claims and Adverse
Consequences, caused by, relating to or arising out of the
following: (i) any condition of or condition on the Assets or the
Terra Assets, whether or not the condition existed before the
Effective Date, and whether or not caused by CMS or its employees or
agents, including, without limitation by way of enumeration, any
condition which may be considered to be a nuisance or which in any
way adversely affects or threatens to adversely affect natural
resources, the environment, or the health and safety of any person
or animal; and (ii) Environmental, Health and Safety Requirements
applicable to any waste material or Hazardous Substances on or
included with the Assets or the Terra Assets, or the presence,
disposal, release or threatened release of waste material or
Hazardous Substances from the Assets or the Terra Assets into the
atmosphere or into or upon land, subsurface strata or any surface or
subsurface waters, whether or not attributable to CMS's or Terra's
activities or the activities of CMS's officers, employees or agents,
or to the activities of third parties (regardless of whether or not
CMS or Terra was or is aware of such activities) prior to, during,
or after the period of CMS's ownership of the Assets. Purchaser
expressly agrees to assume all liability for any condition of or
upon the Assets and the Terra Assets, including those which may have
been created prior to the Effective Date, and expressly agrees that
the preceding indemnification and agreement to hold harmless shall
apply to liability for voluntary environmental response actions
undertaken pursuant to the federal Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), or any other
federal, state or local law.
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(d) Purchaser, its heirs, successors, principals, officers, directors
and affiliates shall defend, indemnify and hold CMS, its parent,
affiliate and subsidiary corporations, as well as CMS's and their
officers, directors, shareholders, employees and agents harmless
from and against any and all Claims and Adverse Consequences arising
out of a violation or alleged violation of sections 61503A, 61503B
or 61503C of Part 615 of the Michigan Natural Resources and
Environmental Protection Act, which occur or are alleged to have
occurred from or after the Effective Date.
(e) The parties agree that, to the extent allowed by applicable law, the
indemnity provisions of this Section 16.3 shall apply regardless of
whether CMS was wholly or partially, actively or passively,
negligent or otherwise at fault, and whether or not the Claims are
based on a theory of negligence, negligence per se, strict
liability, willful misconduct, products liability, premises
liability, liability based on statute, or other theory of liability
as to the applicable indemnitee or others, and regardless of by whom
the Claims are made or brought, including, without limitation,
CMS's, Terra's or Purchaser's employees, agents or representatives,
private citizens, persons or organizations, or any representatives
of federal, state or local government.
(f) The Parties agree that, except with regard to the Retained
Liabilities, and upon the expiration of CMS's obligation with
respect to any applicable representation or warranty of CMS, to the
extent the provisions of any instrument conveying or assigning the
Assets to Purchaser conflict with or appear to limit the provisions
of this Section 16.3, the provisions of this Section 16.3 shall
control.
16.4 Recording
After Closing, Purchaser, at its sole cost and expense shall promptly
record the assignment(s) and all other instruments of conveyance, in the
appropriate offices of the states and/or counties in which the Subject Property
is located. After Closing, Purchaser shall also forward to the applicable
governmental agencies for approval any applicable federal or state assignment
form(s). When available, Purchaser shall thereafter promptly forward to CMS
copies of any recorded or filed instruments which are returned to Purchaser.
After Closing, Purchaser shall forward to the applicable governmental agencies
for approval of any forms, requisite bonds and permit transfers, relating to the
change of operatorship to Purchaser which have not been previously filed, and
Purchaser shall be responsible for all costs associated therewith, if any.
After Closing, Purchaser shall promptly make all necessary governmental
notifications (if any) which have not been previously made concerning the
transfer of all or any part of the Assets.
16.5 State of Michigan Oil and Gas Leases
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Purchaser shall take all actions and file all documents which may be
required to cause the records of the State of Michigan to reflect the transfer
of all State of Michigan oil and gas leases comprising a portion of the Subject
Property, from CMS to Purchaser, and for CMS to be relieved of all
responsibility and liability thereunder. Such actions shall include, but are
not limited to: (i) request of change in lease status with the appropriate
department of the State of Michigan, (ii) the written acceptance and assumption
of responsibility of the lessee under all such leases and post the appropriate
lease performance bond, and (iii) obtain the written approval of the State of
Michigan, and provide same to CMS. Purchaser, and its heirs, successor,
principals, officers, directors and affiliates, shall defend, indemnify and hold
CMS, its parent, affiliate and subsidiary corporations, as well as CMS's and
their officers, directors, shareholders, employees and agents harmless from and
against any and all Claims relating to ownership of an interest in any State of
Michigan oil and gas leases comprising a portion of the Subject Property or the
Terra Property, arising from and after the Effective Date. As to the State of
Michigan oil and gas leases held by Terra, the existing lease performance bond
shall be canceled, and Purchaser's lease performance bond substituted therefore;
or Purchaser shall otherwise assume responsibility for Terra's bond, in a manner
acceptable to CMS, as soon as is reasonably possible. Purchaser, and its heirs,
successor, principals, officers, directors and affiliates, shall defend,
indemnify and hold CMS, its parent, affiliate and subsidiary corporations, as
well as CMS's and their officers, directors, shareholders, employees and agents
harmless from and against any and all Claims relating to CMS's responsibility
with respect to events relating to the foregoing which occur after the Effective
Date.
16.6 Further Assurances
After Closing, CMS and Purchaser agree to take such further actions and
execute, acknowledge and deliver all such further documents that are reasonably
necessary or useful in carrying out the purposes of this Agreement or of any
document delivered pursuant to this Agreement.
16.7 Records
After Closing, CMS will provide the originals, or in CMS's sole
discretion, copies of its files and all files relating to the Terra Assets to
Purchaser pursuant to Section 1.1(h) hereof. If CMS retains any original files,
it shall provide a copy of all such files to Purchaser at CMS's expense, and
shall further provide Purchaser and explanation of the reasons for CMS's
retention of the original file. CMS may retain, at CMS's expense, copies of its
original files so transferred. CMS will return any retained original files upon
its determination that it no longer is required to retain such originals.
Purchaser shall reimburse CMS for all reasonable shipping costs.
16.8 Access to Records
Purchaser, its heirs, successors and assigns, shall, at Purchaser's
expense, preserve and retain all files and records
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relating to the Assets for the period required by all applicable laws and
regulations or seven (7) years, whichever is longer. Purchaser agrees to provide
CMS and its duly designated representatives with access to and the right to copy
and inspect any of the files and records relating to the Assets, at all
reasonable time, upon reasonable advance written notice.
16.9 Litigation Support
In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving any of
CMS, Terra and its Subsidiaries or the Assets and the Terra Assets, the other
Party shall cooperate with it and its counsel in the defense or contest, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the defense or contest, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under the
provisions of this Agreement).
16.10 CMS Employees
Purchaser agrees (which agreement shall survive the termination of this
Agreement), to refrain from employing, either directly or indirectly, whether as
a salaried or contract employee, or otherwise, or from utilizing in any manner
the services, knowledge or expertise of any person employed by CMS other than
those based out of CMS's Traverse City, Michigan office as of January 14, 2000,
for a period of one (1) year from and after the Closing Date.
16.11 Transition
CMS will not take any action that is designed or intended to have the
effect of discouraging any lessor, licensor, customer, supplier, or other
business associate of any of Terra and its Subsidiaries from maintaining the
same business relationships with Terra and its Subsidiaries after the Closing as
it maintained with Terra and its Subsidiaries prior to the Closing.
After Closing, CMS will permit representatives of Purchaser reasonable
access, during normal business days and hours, and in a manner so as not to
interfere with the normal business operations of CMS, to personnel and financial
books and records of CMS (including, without limitation, tax records, and to the
extent prepared, net operating statements for the years 1997, 1998 and 1999),
insofar only as they relate to the Assets, and are required for Purchaser's
preparation of financial statements required by the Securities Exchange
Commission. CMS shall not be required to provide access to any such books,
records or information which it deems, in its sole discretion to be proprietary
or confidential, or which it may not divulge without violating agreements with
third parties. Purchaser for itself
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and its representatives, agrees to keep all information obtained pursuant to its
review of such books and records, strictly confidential in accordance with the
provisions of Section 22.10, below, except for such Securities Exchange
Commission filing purposes. Purchaser agrees to and shall defend, indemnify and
hold CMS, and its parent, affiliate and subsidiary corporations, as well as
CMS's and their officers, directors, employees and agents, harmless from and
against any and all Claims and Adverse Consequences arising out of or in any
manner related to Purchaser's access to and use of such materials, including,
without limitation by reason of damage or injury to any person or property
caused thereby.
16.12 Plan B
(a) With respect to Northern Michigan Exploration Company (predecessor
to CMS) Employee Well Participation Plans A and B, dated April 1,
1980, and amended as of April 1, 1985 and April 1, 1990, Purchaser
hereby agrees that:
(i) from and after the Effective Date, the Subject Property which
are affected thereby, are and shall remain subject to
"Employee Participation Interests", as defined in Plan B;
(ii) from and after the Closing Date, Purchaser will discharge all
obligations in connection with such Employee Participation
Interests under Plan B, including distribution of revenue
attributable to production from the Subject Property, from and
after the Effective Date; and
(iii) from and after the Closing Date, Purchaser will cause any
subsequent transferees of the Subject Property to agree in
writing to comply with the provisions of Plan B.
(b) Within ninety (90) days after the Closing Date, Purchaser agrees to
make good faith offers to purchase the Employee Participation
Interests from all owners thereof, for a price substantially
equivalent to the price for the applicable portion of the Subject
Property in accordance with Attachment H, taking into account the
size and nature of the Plan B interests, and commensurate with the
applicable terms of this Agreement.
ARTICLE XVII - TERMINATION
17.1 Right of Termination
This Agreement and the transactions contemplated hereby may be terminated
in the following instances:
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(a) If the conditions set forth at Article X are not satisfied by
Purchaser or waived by CMS as of the Closing Date, CMS may terminate
this Agreement;
(b) If the conditions set forth at Sections 11.2 through 11.5, inclusive
are not satisfied by CMS or waived by Purchaser as of the Closing
Date, Purchaser may terminate this Agreement;
(c) At any time by mutual written agreement of CMS and Purchaser, and in
accordance with any other express provision of this Agreement, CMS
and Purchaser may mutually terminate this Agreement;
(d) If there has been a material breach of any of the representations
and warranties of CMS which are specified in Section 11.1, above,
Purchaser may terminate this Agreement unless CMS agrees to
indemnify Purchaser with regard to such breach as provided in this
Section 17.1(d). Within four (4) business days after any such breach
becomes known, discovered or disclosed to Purchaser (whether by CMS
pursuant to Section 8.6 or otherwise consistent with Section 9.6),
Purchaser shall provide to CMS written notice of Purchaser's intent
to terminate this Agreement due to such breach. CMS shall within two
(2) business days of its receipt of any such notice from Purchaser,
provide Purchaser with written notice of CMS's decision of whether
or not CMS will indemnify Purchaser from and against all Adverse
Consequences arising from such breach, without limitation. In the
event CMS elects to indemnify Purchaser, such indemnity shall
terminate upon the cure or satisfaction of the matter, event or
occurrence giving rise to such breach. In the event CMS elects not
to indemnify Purchaser as to the Adverse Consequence arising from
such breach, then Purchaser shall within two (2) business days of
its receipt of written notice of CMS's election, either agree in
writing to consummate the transaction contemplated by this
Agreement, or terminate this Agreement by written notice to CMS.
Failure of Purchaser to respond within two (2) business days of
receipt of CMS's election shall be deemed a waiver of Purchaser's
right to terminate this Agreement on account of such breach. If
Purchaser waives, or is deemed to have waived such breach, the
Parties shall consummate the transaction contemplated herein.
Subject to the provisions of Sections 18.1 and 18.2, no waiver by
Purchaser of its right to terminate this Agreement under this
Section 17.1(d) shall preclude Purchaser from any post-Closing
remedy provided in this Agreement to Purchaser on account of any
breach of the representations and warranties of CMS that are
specified in Section 11.1. Regardless of when any such breach
becomes known, discovered or disclosed to Purchaser, CMS may prevent
Purchaser from asserting the breach as a basis for termination of
this Agreement by agreeing to indemnify Purchaser as provided above.
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(e) By either Party if the Closing shall not have occurred on or
before March 31, 2000, unless the failure to close results from a
material breach or default of this Agreement by the Party seeking
termination.
17.2 Liabilities Upon Termination or Failure to Close
In the event this Agreement is terminated by either Party for any reason
set forth in Section 17.1, then neither Party shall be liable to the other for
any indirect, incidental or consequential damages, except as provided in Section
17.3 as to Purchaser's interference with CMS's rights in the Assets or the Terra
Assets after termination.
17.3 Deposit
(a) If this Agreement is terminated by CMS pursuant to Sections 10.1,
10.2, or 10.6, not having been satisfied by Purchaser or not having
been waived by CMS; or Purchaser's failure to close, as provided in
Section 17.1(e), CMS shall have the right, in addition to all other
rights set forth herein, to retain the Deposit as partial liquidated
damages, and to seek any additional amount of actual damages which
CMS may suffer in excess of the amount of the Deposit. If this
Agreement is terminated for any reason, CMS shall immediately enjoy
all rights of ownership of the Assets and the Terra Assets and to
sell, transfer, encumber or otherwise dispose of the Assets and the
Terra Assets to any party without any restriction under this
Agreement, and Purchaser shall be liable for all damages, including,
but not limited to, direct, indirect, incidental and consequential
damages, if Purchaser attempts to interfere in any way with CMS's
assertion or enjoyment of CMS's rights in the Assets and the Terra
Assets after termination. If this Agreement is terminated for any
other reason, CMS shall return the Deposit to Purchaser, without
interest.
(b) In the event the transaction contemplated by this Agreement does not
close, and CMS is entitled to retain the Deposit, as provided in
Section 17.3(a), above, then and in that event, CMS shall be
entitled to retain the cash component of the Deposit. In this event
CMS shall also have a put option with respect to twenty-five percent
(25%) of the QRI Stock on each of June 30, 2000, September 30, 2000,
December 31, 2000 and March 30, 2001 at $4 1/8 per share, $4 1/4 per
share, $4 3/8 per share and $4 1/2 per share, respectively. The
Parties hereby agree that within fifteen (15) days of delivery of
written notice of CMS's election to exercise a put option, CMS will
deliver the shares of QRI Stock which are the subject of the put
option to Purchaser, and Purchaser will concurrently pay CMS an
amount equal to the number of shares of QRI Stock which are put,
multiplied by the applicable put option share price. Purchaser shall
have a call option on not less than twenty-five percent (25%) of the
QRI Stock, at any time and from ti me to time, at a price that is
the sum
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of $4 per share plus interest at the rate of twelve and one-half
percent (12.5%) per annum computed from the Closing Date to the date
the call option is exercised. CMS agrees to immediately transfer the
affected QRI Stock if Purchaser timely and properly exercises one or
more of its call options.
17.4 Effect of Termination
If any Party terminates this Agreement pursuant to Section 17.1,
above, then except as provided in Section 17.3., above, all rights and
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party (except for any liability of any Party then in
breach); provided, however, that the confidentiality provisions contained in
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Section 22.10, below, shall survive any such termination.
ARTICLE XVIII - REMEDIES FOR BREACHES OF THIS AGREEMENT
18.1 Survival of Representations and Warranties
The representations and warranties of CMS which are contained in
Sections 4.1, 4.2, 4.3, 4.4, 4.16, 6.1, 6.3, 6.4, 6.6, 6.9, 6.11 and 6.13,
above, will expire at, and shall not survive the Closing. In the event that the
transaction contemplated by this Agreement does not proceed to closing, and CMS
is entitled to retain the Deposit in accordance with Section 17.3, above, then
the representation and warranty contained in Section 4.16, above, will survive
until all of the QRI Stock is put or called as provided in Section 17.3(b),
above. The representations and warranties of CMS set forth in Sections 4.13 and
6.16, above, will survive the Closing for a period of four (4) months (until
July 31, 2000), and shall thereafter expire and be of no further force and
effect in accordance with the indemnity provisions of Section 13.10, above, and
subject to the limitations imposed in Sections 13.3(b) and 13.5, above. The
representations and warranties of CMS which are set forth in Sections 4.5, 4.6,
4.7, 4.11, 4.12, 4.14, 4.15, 6.2, 6.5, 6.7, 6.8, 6.14, 6.17, 6.18 and 6.19,
above shall survive the Closing for a period of one (1) year and shall
thereafter expire and be of no further force and effect. The representations
and warranties of CMS set forth in Sections 4.8, 4.9, 4.10, 6.10, 6.12 and 6.15,
above, shall survive the Closing for a period of two (2) years and shall
thereafter expire and be of no further force and effect.
18.2 Indemnification Provisions for Benefit of the Purchaser
(a) In the event CMS breaches any of its representations, warranties,
and covenants contained herein, and, if there is an applicable
survival period pursuant to Section 18.1, above, provided that
Purchaser makes a written claim for indemnification against CMS
pursuant to Section 22.7, below within such survival period, then
CMS agrees to indemnify Purchaser from and against any Claims and
Adverse Consequences Purchaser shall suffer through and after the
date of the claim for indemnification (but excluding any Claims
---------
and Adverse
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Consequences Purchaser shall suffer as to any matter, event or
occurrence which Purchaser does not timely and properly raise prior
to the end of any applicable survival period) caused proximately by
the breach. Purchaser shall not be entitled to any indemnification
for those representations and warranties contained in Sections 4.5
through 4.12, inclusive [except 4.11(b)], Sections 4.14 and 4.15,
Sections 6.2, 6.7, 6.8 [except 6.8(w)], 6.10, 6.12, 6.14, 6.15, 6.17
and 6.18 (the "Limited Representations"), unless the aggregate
amount of the loss or damage to Purchaser resulting from a breach or
breaches exceeds $300,000.00, and anything contained herein to the
contrary notwithstanding, the total aggregate indemnification of
Purchaser by CMS as a result of any and all such breaches of the
Limited Representations shall be limited to the sum of
$5,000,000.00. In no event shall CMS indemnify Purchaser for any
Claims relating to the first $300,000.00 of claims alleged by
Purchaser relating to the Limited Representations, whether or not
the cumulative net amount of all such Claims exceeds that sum. With
respect to any such breach of the representations and warranties
contained in Sections 4.11(b) and 6.8(w), above, the total aggregate
indemnification of Purchaser by CMS shall be limited to the amount
of the tax credit valuation for each of the wells comprising the
Subject Property and the Terra Property.
(b) CMS also agrees to indemnify Purchaser from and against any Adverse
Consequences Purchaser shall suffer as a result of any breach of the
representations and warranties of CMS contained in Sections 6.5 and
6.19, above, provided, however, that Purchaser shall not be entitled
to any indemnification under this Section 18.2(b) unless the
aggregate amount of the loss or damage to Purchaser exceeds
$1,000,000.00, but in no event shall the total aggregate
indemnification of Purchaser by CMS under this Section 18.2(b)
exceed $20,000,000.00.
(c) CMS also agrees to indemnify Purchaser from and against any Adverse
Consequences Purchaser shall suffer as a result of any action, suit,
proceeding, hearing or investigation relating directly to the Assets
or Terra Assets, the basis for which is an event which occurred
prior to the Effective Date, and as to which Purchaser has asserted
a written claim pursuant to Section 22.7, below, within two (2)
years of the Closing Date. The obligations of CMS under this Section
18.2(c) shall be subject to the same limitations expressed in
Section 18.2(a), above, with regard to the Limited Representations.
18.3 Indemnification Provisions for Benefit of CMS
In the event Purchaser breaches any of its representations, warranties,
and covenants contained herein, provided that CMS makes a written claim for
indemnification against Purchaser
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pursuant to Section 22.7, below, within such survival period, then Purchaser
agrees to indemnify CMS from and against the entirety of any Claims and Adverse
Consequences CMS shall suffer through and after the date of the claim for
indemnification (but excluding any Claims and Adverse Consequences CMS shall
---------
suffer after the end of any applicable survival period) caused proximately by
the breach.
18.4 Matters Involving Third Parties
(a) If any third party shall notify any Party (the "Indemnified
-----------
Party") with respect to any matter (a "Third Party Claim") which
------ -----------------
notification may give rise to a claim for indemnification against
any other Party (the "Indemnifying Party") under this Article XVIII,
------------------
then the Indemnified Party shall promptly and in any event within
five (5) business days after receiving notice of the Third Party
Claim notify the Indemnifying Party thereof in writing.
Notwithstanding the foregoing, the provisions of this Section 18.4
shall apply to any notice delivered later than five (5) business
days subsequent to receipt of any Third Party Claim, so long as the
Indemnifying Party is not materially prejudiced by the fact that
such notice is delivered after five (5) business days from receipt
of the Third Party Claim.
(b) The Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with
counsel of its choice reasonably satisfactory to the Indemnified
Party; provided, however, that the Indemnifying Party will not
-----------------
consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably)
unless the judgment or proposed settlement involves only the payment
of money damages and does not impose an injunction or other
equitable relief upon the Indemnified Party.
(c) Unless and until the Indemnifying Party assumes the defense of the
Third Party Claim as provided in Section 18.4(b), above, however,
the Indemnified Party may defend against the Third Party Claim in
any manner it reasonably may deem appropriate.
(d) In no event will the Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnifying
Parties (not to be withheld unreasonably).
18.5 Determination of Adverse Consequences
The Parties shall make appropriate adjustments for tax benefits and
insurance coverage and take into account the time cost of money (using the prime
interest rate quoted in the Wall Street Journal as the discount rate) in
-------------------
determining Adverse
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Consequences for purposes of this Article XVIII. All indemnification payments
under this Article XVIII shall be deemed adjustments to the Purchase Price.
18.6 Exclusive Remedy
The Parties acknowledge and agree that except as otherwise specifically
provided in this Agreement, the foregoing indemnification provisions in this
Article XVIII shall be the exclusive remedy of Purchaser with respect to CMS,
Terra, its Subsidiaries, and the transaction contemplated by this Agreement.
ARTICLE XIX - TAXES
19.1 Liability for Taxes
(a) Except for taxes which are specifically to be reimbursed by
Purchaser pursuant to Sections 19.5 and 19.9, below, CMS shall be
liable for and indemnify Purchaser for all Taxes imposed on
Purchaser and Terra (or for which Purchaser may otherwise be liable)
arising from the Assets, the Terra Assets or activities of Terra and
its Subsidiaries for any taxable year or period of Terra or its
Subsidiaries that ends as of the end of the day on the Closing Date
and, with respect to any taxable year or period beginning before and
ending after the Closing Date, the portion of such taxable year
ending at the end of the day on the Closing Date.
(b) Purchaser and Terra shall be liable for and indemnify CMS for the
Taxes imposed on the Assets, the Terra Assets or activities of Terra
and its Subsidiaries for any taxable year or period that begins
after the Closing Date and, with respect to any taxable year or
period beginning before and ending after the Closing Date, the
portion of such taxable year or period beginning after the Closing
Date.
(c) For purposes of Sections 19.1(a) and 19.1(b), above, whenever it is
necessary to determine the liability of the Parties for Taxes for a
portion of a taxable year or period that begins before and ends
after the Closing Date, the determination of the Taxes for the
portion of the year or period ending before, and the portion of the
year or period beginning on, and continuing after the Closing Date
shall be determined by assuming a taxable year or period which ended
at the close of the Closing Date, except that exemptions, allowances
or deductions that are calculated on an annual basis, such as the
deduction for depreciation, shall be apportioned on a daily basis.
(d) After the execution of this Agreement, Purchaser or its designee
shall have the right to inspect, at all reasonable times, and upon
forty-eight (48) hours prior written request delivered to CMS, the
following: (i) all Income Tax Returns of Terra and its Subsidiaries
requested by Purchaser; (ii) any other Tax Returns of
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Terra and its Subsidiaries requested by Purchaser, as may be
relevant to Terra and its Subsidiaries, and which relate to the
Terra Assets and operation of the Terra Property; and (iii) any work
papers or other supporting data requested by Purchaser relating to
Tax Returns made available pursuant to (i) or (ii), or relating to
Tax Returns referred to in (i) or (ii) not yet filed, to the extent
copies of such Tax Returns, work papers or other data are in
existence and in the possession of CMS at the time of such request.
(e) CMS shall be entitled to receive any refund or credit of Taxes (and
interest thereon) attributable to a carryback of losses, credits or
other similar items from a taxable year or period that ends on or
before the Closing Date, and Purchaser shall be entitled to such
items attributable to a taxable year or period that ends after the
Closing Date.
(f) CMS shall be entitled to any Tax refunds due Terra or its
Subsidiaries for and attributable to all periods prior to the
Closing Date, and if received by Purchaser, Purchaser shall
immediately deliver all such refunds to CMS.
19.2 Tax Returns
CMS shall file when due (after taking into account all extensions
properly obtained) all Tax Returns that are required to be filed by or with
respect to Terra and its Subsidiaries for the taxable year ending on or before
the Closing Date and shall remit or cause to be remitted any Taxes shown to be
due on such Tax Returns; and Purchaser shall file when due (after taking into
account all extensions properly obtained) all Tax Returns that are required to
be filed by Terra and its Subsidiaries for taxable years beginning after the
Closing Date, and shall remit or cause to be remitted any Taxes due in respect
of such Tax Returns. CMS agrees to file those Tax Returns for periods on or
before the end of the day of Closing Date which CMS is required to file under
applicable rules relating to when the Assets are actually transferred. All Tax
Returns which Purchaser, Terra or CMS are required to file in accordance with
this Section 19.2 shall be prepared and filed in a manner consistent with past
practice and, on such Tax Returns no position shall be taken or method adopted
that is inconsistent with positions taken or methods used in preparing and
filing similar Tax Returns in prior periods except for changes required by law
or changes in facts, or as the Parties otherwise agree.
19.3 Contest Provisions
Purchaser shall notify CMS in writing upon receipt of notice of any
pending or threatened federal, state or local Tax audit or assessment (including
any revenue agent report or notice of proposed adjustment) which may materially
affect the Tax liabilities of Terra or its Subsidiaries for which CMS would be
required to indemnify Purchaser pursuant to Section 19.1(a), above.
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CMS shall have the sole right to represent the interests of Terra and
its Subsidiaries in any Tax audit or administrative or court proceeding relating
to taxable periods ending on or before the Closing Date, and to employ counsel
of their choice at their expense, provided that Purchaser (and their tax
counsel) may, at their own expense, be present at and participate in any such
audit or proceeding. Notwithstanding the foregoing, CMS shall not be entitled
to settle, either administratively or after the commencement of litigation, any
claim for Taxes which would adversely affect the liability for Taxes of
Purchaser for any period after the Closing Date to any extent (including, but
not limited to, the imposition of Income Tax deficiencies, the reduction of
asset basis or cost adjustments, the lengthening of any amortization or
depreciation periods, the denial of amortization, depreciation or depletion
deductions) without the prior written consent of the Purchaser. Such consent
shall not be necessary to the extent that CMS has indemnified Purchaser against
the effects of any such settlement.
A representative of CMS (and their tax counsel) may, at its own expense,
be present at and participate in any audit or proceeding relating to the matters
covered by this Article XIX. Purchaser shall not settle any dispute with respect
to such matters without the consent of CMS, except that Purchaser may settle any
such dispute without the consent of CMS if it agrees to relieve CMS of their
indemnification obligation hereunder with respect to such transaction.
19.4 Assistance and Cooperation
After the Effective Date, each of CMS and the Purchaser shall:
(a) Agree to timely sign and deliver such certificates or forms as may
be necessary or appropriate to establish an exemption from (or
otherwise reduce) or make a report with respect to any Taxes
including those described in Section 19.10, below.
(b) Assist (and cause their respective affiliates to assist) the other
Party in preparing any Tax Returns which such other Party is
responsible for preparing and filing in accordance with Section
19.2, above.
(c) Cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding, any Tax Returns of Terra and its
Subsidiaries.
(d) Make available to the other Party and to any taxing authority as
reasonably requested, all information, records, and documents
relating to Taxes of Terra and its Subsidiaries.
(e) Provide timely notice to the other Party in writing of any
pending or threatened Tax audits or assessments of Terra and its
Subsidiaries for taxable periods for which the other may have a
liability under this Article XIX.
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(f) Furnish the other Party with copies of all correspondence received
from any taxing authority in connection with any Tax audit or
information request with respect to any such taxable period.
CMS and Purchaser shall provide each other with reasonable access to all
relevant documents, data and other information which may be required for the
purpose of preparing Tax Returns and responding to any audit by any taxing
jurisdiction. CMS and Purchaser shall cooperate with all reasonable requests of
the other made in connection with contesting the imposition of Taxes. Neither
CMS nor Purchaser shall be required at any time to disclose to the other any
Income Tax Returns or other confidential Tax information.
19.5 Adjustment to Purchase Price For Taxes
Purchaser shall reimburse CMS for any Taxes (without taking into account
any section 29 tax credits) payable by CMS with respect to the Assets or
attributable to the operation of Terra for the Interim Period. Any payment by
CMS or Purchaser under this Article XIX shall be considered an adjustment to the
Purchase Price paid in connection with the transaction contemplated by this
Agreement, and to the extent that it cannot be so characterized for Tax
purposes, shall be made on an After-Tax Basis. For purposes of this Agreement,
the term After-Tax Basis means, with respect to any amount which is to be paid
hereunder on an "After-Tax Basis", an amount which, after subtraction of the
amount of all federal, state and local Taxes payable by the recipient thereof as
a result of the receipt or accrual of such payment, and after taking into
account (i) the increase in federal, state and local Taxes (including estimated
Taxes) payable by such recipient for all affected taxable years as a result of
the event or occurrence giving rise to such payment, and (ii) the reduction in
federal, state and local Taxes (including estimated Taxes) payable by the
recipient for all applicable taxable years, including the present value (using
the applicable federal rate as the discount rate) of all reasonably anticipated
future tax reduction for taxable years ending on or after the end of the taxable
year in which such payment is made, shall be sufficient as of the date of
payment to compensate the recipient for such event or occurrence giving rise to
such payment.
19.6 Treatment of the Terra Shares
The Parties hereby acknowledge and agree that transfer of the Terra
Shares shall not be treated or considered to be an asset purchased for purposes
of Code section 338(h)(10).
19.7 CMS Tax Allocation Agreement
The participation of Terra and its Subsidiaries in the CMS Energy
Corporation tax allocation agreement shall only relate to periods prior to the
Effective Date.
19.8 Books and Records
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At Closing, or as soon thereafter as is reasonably practical, CMS shall
deliver to Purchaser all books and records relating to Terra and its
Subsidiaries, except that CMS shall retain originals or copies of all books and
records necessary or convenient for CMS to prepare the Tax Returns it is
required to file pursuant to Section 19.2, above.
19.9 Sales Taxes
The Purchase Price is net of any sales taxes or other transfer taxes in
connection with the sale of the Assets. Purchaser shall be liable for any sales
tax or other transfer tax, as well as any applicable conveyance, transfer and
recording fees, and real estate transfer stamps or taxes imposed on the transfer
of the Assets. Purchaser shall indemnify and hold CMS harmless from liability
for payment of any such Taxes, including any interest or penalties assessed
thereon.
19.10 Other Taxes
All severance, production, conservation, excise, windfall profit, single
business and other Taxes, other than Income Taxes and those Taxes covered by
Section 19.9, above, or fees relating to production of oil, gas and condensate
attributable to the Assets assessed prior to the Effective Date shall be paid by
CMS, except to the extent taken into account under Section 3.3, above. All such
Taxes relating to production of oil, gas and condensate attributable to the
Terra Assets assessed on or after the Effective Date shall be paid by Purchaser,
regardless of the method or basis used for calculating the Tax.
ARTICLE XX - EXERCISE OF PREFERENTIAL PURCHASE RIGHTS
CMS agrees to use commercially reasonable best efforts to identify any
and all parties holding a preferential right to purchase, right to reacquire,
consent to transfer and any other contractual right to acquire or consent to the
transfer of the Assets or the Terra Assets, as contemplated by this Agreement.
CMS will provide the required notice to the holders of all such rights which it
has identified and shall provide a copy of all such notifications to Purchaser
and any and all responses thereto. CMS will thereafter provide to Purchaser a
list which identifies the contracts and agreements giving rise to the notices
which CMS has provided pursuant to this Article XX. If during the Interim Period
any holder of a preferential purchase right or right of reassignment affecting
any portion of the Subject Property or the Terra Property notifies CMS or
Purchaser prior to Closing that the holder intends to exercise the holder's
rights and purchase or reacquire a portion of the Subject Property or the Terra
Property to which a preferential purchase right or right of reassignment
applies, those interests shall be excluded from the Assets to be conveyed to
Purchaser, and the Purchase Price shall be reduced in accordance with the
provision of Section 3.3, above. The value of the downward adjustment to the
Purchase Price shall be a proportionate decrease in the portion of the Purchase
Price allocated to the applicable
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interest in an oil and gas lease affected by the preferential purchase right or
right of reassignment. If the holder of a preferential purchase right or right
of reassignment fails to consummate the purchase or reacquisition of all or a
portion of the Subject Property or the Terra Property affected by the right, CMS
shall so notify Purchaser, and within fifteen (15) days after Purchaser's
receipt of notice from CMS, CMS shall sell to Purchaser, and Purchaser shall
purchase from CMS the applicable interest for a price equal to the portion of
the Purchase Price allocated to the applicable interest and upon the other terms
of this Agreement. All interests comprising the Subject Property or the Terra
Property for which a preferential purchase right or right of reassignment have
not been asserted prior to Closing shall be sold and conveyed to Purchaser at
Closing pursuant to the provisions of this Agreement. If prior to Closing CMS is
unable to timely and properly identify and notify the holders of any
preferential purchase rights, rights to reacquire or consent rights, CMS shall
so notify Purchaser, and CMS will, with reasonable diligence proceed to identify
and notice the holders of such rights. If one or more of the holders of any
preferential purchase rights or rights to reacquire notifies CMS subsequent to
the Closing that it intends to assert its preferential purchase right, CMS shall
give notice thereof to Purchaser. Purchaser shall satisfy all preferential
purchase right and right to reacquire obligations of CMS to the holders thereof.
CMS shall indemnify and hold Purchaser harmless from and against any and all
Claims in connection with any preferential purchase rights, rights to reacquire
or consent rights which are asserted subsequent to Closing, except as to the
value assigned to the affected portion of the Subject Property or the Terra
Property, pursuant to Attachment H. Purchaser agrees to convey any Assets or
Terra Asset to the holder of any preferential purchase right. right to reacquire
or similar contractual rights, which are properly exercised subsequent to
Closing. Purchase shall be entitled to receive, and CMS hereby assigns to
Purchaser all of CMS's rights to all proceeds received from holders of
preferential purchase rights and rights to reacquire which are properly
exercised subsequent to Closing.
ARTICLE XXI - INDEPENDENT INVESTIGATION AND DISCLAIMER
21.1 Disclaimer as to Warranties
The Parties agree that the disclaimer of warranties contained in this
Section 21.1. and in the conveyance instruments to be delivered pursuant to this
Agreement are conspicuous disclaimers for the purposes of any applicable law,
rule or order. PURCHASER ACKNOWLEDGES THAT IN MAKING THE DECISION TO ENTER INTO
THIS AGREEMENT AND CONSUMMATE THE TRANSACTIONS CONTEMPLATED HEREBY, PURCHASER
HAS RELIED SOLELY ON THE BASIS OF ITS OWN EXPERTISE AND INDEPENDENT
INVESTIGATION OF THE ASSETS AND THE TERRA ASSETS, EXCEPT AS OTHERWISE
SPECIFICALLY PROVIDED IN THIS AGREEMENT. PURCHASER ACKNOWLEDGES THAT EXCEPT
FOR, AND TO THE EXTENT OF THE REPRESENTATIONS AND WARRANTIES EXPRESSLY SET FORTH
IN ARTICLES IV AND VI, ABOVE, CMS HAS NOT MADE, AND CMS HEREBY EXPRESSLY
DISCLAIMS AND NEGATES, ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT
COMMON LAW, BY STATUTE, OR
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OTHERWISE RELATING TO (i) TITLE TO OR THE CONDITION OF THE ASSETS (INCLUDING
WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY, OF
FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF
MATERIALS AS TO ANY PERSONAL PROPERTY OR FIXTURES TO BE CONVEYED) AND (ii) ANY
INFORMATION, DATA OR OTHER MATERIALS (WRITTEN OR ORAL) FURNISHED TO PURCHASER BY
OR ON BEHALF OF CMS (INCLUDING, WITHOUT LIMITATION, THE EXISTENCE OR EXTENT OF
OIL, GAS OR OTHER MINERAL RESERVES, THE RECOVERABILITY OF OR THE COST OF
RECOVERING ANY SUCH RESERVES, THE VALUE OF SUCH RESERVES, ANY PRODUCT PRICING
ASSUMPTIONS, PRESENT OR PAST PRODUCTION RATES, COMPLIANCE WITH LEASE TERMS, THE
CONDITION OF ANY WELL, AND THE ABILITY TO SELL OIL OR GAS PRODUCTION AFTER
CLOSING). PURCHASER COVENANTS AND REPRESENTS THAT, SUBJECT TO THE OBLIGATIONS OF
CMS WITH RESPECT TO THE RETAINED LIABILITIES, PURCHASER HAS INSPECTED OR BEFORE
CLOSING WILL INSPECT THE ASSETS AND THE TERRA ASSETS, AND ACCEPTS THE SAME "AS
IS", "WHERE IS" and "WITH ALL FAULTS".
21.2 Disclaimer As To Year 2000 Compliance
Certain of the Assets and the Terra Assets may rely on computer systems,
including embedded chips, to enhance their function. Many of those systems may
have recorded years in a two-digit format. Such computer systems, if not
replaced or modified so as to become "Year 2000 Compliant", may be unable to
properly recognize dates arising in the year 2000 and later. As used herein,
"computer systems" includes, but is not limited to, computer hardware and
software (including macrocode, firmware, embedded chips, application programs,
files, databases, and third-party software embedded therein), and electronic
components and systems. As used herein, the term "Year 2000 Compliant" means
that the computer systems will provide accurate and uninterrupted information
and calculations unaffected by dates (including the dates of 9/9/99, 1/1/00 and
dates arising in the calendar year 2000 and later, including leap years), and
that the performance and functionality of the computer systems will not be
adversely affected by said dates.
With regard to this issue, to the Knowledge of CMS, it has encountered
no material problems or difficulties since the Effective Date. CMS expressly
disclaims and negates any and all other representation or warranty, express or
implied, at common law, by statute, or otherwise, as to whether the Assets or
the Terra Assets and/or such systems are, or are not, "Year 2000 Compliant".
Purchaser agrees to purchase the Assets in their "As Is, Where Is, and With Any
and All Faults and Defects" condition, as related to such Assets, the Terra
Assets and such systems being "Year 2000 Compliant", and covenants and agrees
that it will indemnify and hold CMS harmless from and against any and all
Claims, and all actual, indirect, incidental, and consequential damages, if
any, brought or suffered by it or any third party based upon any failure of the
Assets, the Terra Assets or such systems to be "Year 2000 Compliant".
ARTICLE XXII - MISCELLANEOUS
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22.1 Like-Kind Exchange
CMS shall have the option, at or before Closing, to structure the
Closing of this transaction in such a manner so as to qualify, in whole or in
part, as part of a like-kind exchange pursuant to Section 1031 of the Code.
Purchaser will cooperate with CMS to facilitate a like-kind exchange, including
a three corner or multi-party exchange. In the event CMS desires such an
exchange, CMS shall timely notify Purchaser of its intent within seven (7) days
prior to Closing and CMS shall be responsible for arrangement of the structure
for the exchange, compliance with time limits on like-kind exchanges, the
preparation of appropriate documents to complete the transaction, and all
additional costs directly related thereto.
22.2 Governing Law
This Agreement, the validity of the various conveyances made hereunder
affecting title to real property, the indemnities herein and the other documents
delivered pursuant hereto and the legal relations among the Parties shall be
governed by and construed in accordance with the laws of the State of Michigan.
22.3 Entire Agreement
This Agreement and the Attachments attached hereto constitute the entire
agreement between CMS and Purchaser with respect to the Assets and the Terra
Assets, and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, between CMS and Purchaser. No supplement,
amendment, alteration, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by both CMS and Purchaser.
22.4 Amendments and Waivers
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by Purchaser and CMS. No waiver by any
Party of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
22.5 Captions
The captions in this Agreement are for convenience only and shall not be
considered a part of or affect the construction or interpretation of any
provision of this Agreement.
22.6 Assignment
Purchaser shall not assign this Agreement or any of its rights or
obligations pursuant to this Agreement without CMS's prior written consent. CMS
hereby acknowledges and agrees that
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in the event Purchaser defaults under the terms of its purchase money finance
obligations with respect to the transaction contemplated by this Agreement, then
upon written notice to CMS, Purchaser's rights and obligations under this
Agreement may be assigned to Purchaser's primary lending institution. No such
assignment shall be effective unless and until the assignee agrees in writing to
accept and assume the rights, duties and obligations of Purchaser hereunder. Any
such assignment shall be at no cost or expense to CMS, and shall not be deemed
to extend any of the time periods set forth herein. Unless such written consent
of CMS so specifies, subsequent to any assignment of Purchaser's interest
hereunder including the assignment provided for above, Purchaser shall not be
released from any responsibility or liability for the obligations, covenants,
representations, warranties or indemnities of Purchaser under this Agreement.
Any assignment made without CMS's consent shall be void. This Agreement shall be
binding upon and inure to the benefit of CMS and Purchaser and their respective
successors, heirs and assigns. CMS may, without Purchaser's prior approval,
assign its interest under this Agreement to a qualified intermediary in order to
pursue a like-kind exchange.
22.7 Notices
Any notice provided or permitted to be given under this Agreement shall
be in writing, and may be served by personal delivery, telefacsimile with
confirmation of receipt or by depositing the notice in the United States mail,
addressed to the Party to be notified, postage prepaid, and registered or
certified with a return receipt requested. Notice may also be given by sending
the written notification by courier service. Notice deposited in the mail in the
manner described by this Section 22.7 shall be deemed to have been given and
received on the date of the delivery as shown on the return receipt. Notice
served in any other manner shall be deemed to have been given and received only
if and when actually received by the addressee. For purposes of notice, the
addresses of the parties shall be as follows:
CMS's Mailing Address:
CMS Oil and Gas Company
1021 Main Street, Suite 2800
Houston, Texas 77002
Attention: Michael J. Killelea, Chief Counsel
Phone: 713-230-7221
Fax: 713-651-0622
Purchaser's Mailing Address:
Quicksilver Resources Inc.
1619 Pennsylvania Avenue
Forth Worth, Texas 76104
Attention: Houston Kauffman, Vice-President
Phone: 817-332-9133
Fax: 817-877-8959
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Each Party shall have the right, upon giving ten (10) days prior written
notice to the other to change its address for purposes of notice.
22.8 Expenses
Except as specifically provided otherwise in this Agreement, CMS and
Purchaser shall each be solely responsible for all expenses incurred by it in
connection with this transaction, including, without limitation, fees and
expenses of their own counsel and accountants.
22.9 Severability
If any term or provision (or portion thereof) of this Agreement is held
invalid, illegal or incapable of being enforced under any rule of law or
regulation, all remaining conditions and provisions of this Agreement shall
survive and remain in full force and effect to conform to the Parties' intent,
so long as the economic or legal substance is not affected in a materially
adverse manner with respect to either Party.
22.10 Confidentiality, Publicity and Retention of Data
(a) Until completion of the Closing, and in the event the transaction
contemplated by this Agreement is not consummated for any reason,
whatsoever, except as required by law and with prior notice to CMS,
Purchaser and its agents and representatives will hold in strict
confidence all Confidential Information obtained from CMS, any other
Person, or derived from information provided by CMS, or as a result
of Section 5.6, Section 8.5, Section 12.2, or Section 13.1, above,
whether before or after the execution of this Agreement, except any
data or information which (i) at the time of the disclosure to
Purchaser by CMS is in the public domain; (ii) after disclosure to
Purchaser by CMS becomes part of the public domain by publication or
otherwise, except by breach of this commitment by Purchaser; (iii)
Purchaser can establish by competent proof it was rightfully in its
possession at the time of disclosure to Purchaser by CMS; (iv)
Purchaser rightfully receives from any Person free of any obligation
of confidence; or (v) is developed independently by Purchaser,
provided the Person or Persons developing the information shall not
have had reference to data or information obtained from CMS in
connection with the transaction contemplated by this Agreement. If
this Agreement is terminated for any reason and as to any portion of
the Assets or the Terra Assets not assigned or conveyed to Purchaser
at Closing, Purchaser shall return to CMS all Confidential
Information obtained from CMS related to all or the portion of the
Assets or the Terra Assets not conveyed. Purchaser shall not utilize
or permit utilization of Confidential Information to compete with
CMS or its co-working interest owners in the Assets and the Terra
Assets. The terms of this Section 22.10 shall survive any
termination of this Agreement.
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(b) CMS and Purchaser shall use their reasonable best efforts to provide
one another with drafts of the press releases to be issued
immediately subject to Closing. The Parties will use their
reasonable best efforts to approve such press releases prior to
Closing. Except as required by applicable law or the applicable
rules or regulations of any governmental body or stock exchange,
neither Party shall issue any publicity or other release without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld.
22.11 Use of CMS's Name
No later than ten (10) days after the Closing, Purchaser shall use its
reasonable best efforts to remove or cause to be removed the names and marks
used by CMS and all variations and derivatives and logos from the Assets or the
Terra Assets, if CMS has not already done so. Purchaser shall not make any use
whatsoever of CMS's names, marks and logos after Closing. CMS shall have the
right to enter any premises and remove all signs and logos containing CMS's name
at Purchaser's expense should Purchaser fail to do so in a timely manner.
22.12 Conditions
The inclusion in this Agreement of conditions to either Party's
obligation to close shall not, in and of itself, constitute a covenant of the
other Party to satisfy the conditions to either Party's obligation to close.
22.13 No Third-Party Beneficiaries
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
22.14 Succession and Assignment
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns.
22.15 Construction
The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state or local statute or law
shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
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22.16 Attachments
A reference to an Attachment throughout this Agreement shall mean and
be construed as referring to an Attachment attached to this Agreement, and all
Attachments shall be deemed to have been fully incorporated into and made a part
of this Agreement.
22.17 Counterparts
This Agreement maybe executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
22.18 Execution Deadline
This Agreement shall be open for acceptance up to, but not after, 5:00
P.M. Central Standard Time on March 6, 2000, and if not accepted by the
execution and return of one (1) original to CMS by such time, shall be null and
void at CMS's option. Acceptance within the time provided shall constitute a
contract of purchase and sale binding upon the Parties hereto and their
respective successors and assigns.
CMS OIL AND GAS COMPANY QUICKSILVER RESOURCES INC.
By: /s/ WILLIAM H. STEPHENS, III By: /s/ HOUSTON KAUFFMAN
------------------------------ --------------------------------
Name: Name:
-------------------------- ---------------------------
Title: Executive Vice President Title: Vice President
------------------------- --------------------------
Tax I.D. No.: Tax I.D. No.:
------------------ -------------------
ACKNOWLEDGMENT
STATE OF )
) ss
COUNTY OF )
On this 4th day of March, 2000 before me, the undersigned, a Notary Public, in
and for the County and State aforesaid, personally appeared William H. Stephens,
known to be the identical person who executed the foregoing instrument as
Executive Vice President of CMS Oil and Gas Company, and acknowledged to me that
he executed the same as his free and voluntary act and deed and as the free and
voluntary act and deed of such corporation, for the uses and purposes therein
set forth.
/s/ ROSEMARY CARUNA
---------------------------------
Notary Public
My Commission Expires: 4/17/02
-----------
83
ACKNOWLEDGMENT
STATE OF )
) ss
COUNTY OF )
On this 4th day of March, 2000 before me, the undersigned, a Notary Public, in
and for the County and State aforesaid, personally appeared Houston Kaufman,
known to be the identical person who executed the foregoing instrument as Vice
President of Quicksilver Resources Inc. and acknowledged to me that he executed
the same as his free and voluntary act and deed and as the free and voluntary
act and deed of such corporation, for the uses and purposes therein set forth.
/s/ ROSEMARY CARUNA
---------------------------------
Notary Public
My Commission Expires: 4/17/02
-----------
84
ATTACHMENT A1
ATTACHED TO AND MADE A PART OF THAT CERTAIN
PURCHASE AND SALE AGREEMENT DATED THE _____ DAY OF __________, 2000
BY AND BETWEEN ______________________, AS SELLER,
AND __________________________________, AS PURCHASER
STATE OF MICHIGAN DESCRIPTION WORKING NET REVENUE PURCHASE PRICE
WELL/UNIT NAME SEC-TWN-RGE/COUNTY INTEREST (%) INTEREST (%) ALLOCATION ($)
- ---------------------------------- ------------------ ------------ ------------- ---------------
TO BE COMPLETED AT A LATER DATE
TOTAL PURCHASE PRICE $__________________
85
ATTACHMENT A2
ATTACHED TO AND MADE A PART OF THAT CERTAIN
ASSIGNMENT EFFECTIVE _______________, 2000, BETWEEN __________________
AND ____________________________________
SCHEDULE OF LEASES
(The recording references herein are to the records in said county in which
oil, gas and mineral leases are recorded.)
COUNTY:
STATE:
LEASE NO. DATE LESSOR LESSEE RECORDING DATA DESCRIPTION OF PROPERTY
(including depth
limitation, if any)
BOOK PAGE
TO BE COMPLETED AT A LATER DATE
86
ATTACHMENT A3
[overriding royalty interests - Section 1.1(b)]
TO BE COMPLETED AT A LATER DATE
87
ATTACHMENT A4
[fee mineral, fee surface interests and rights-of-way - Section 1.1(b)]
TO BE COMPLETED AT A LATER DATE
88
ATTACHMENT A5
[gas plants, facilities, systems and pipelines - Section 1.1(d)]
TO BE COMPLETED AT A LATER DATE
89
ATTACHMENT B1
(Inventory of Retained Personal Property Assets)
90
ATTACHMENT B2
(Description of 1475 Terra Road, Traverse City, Michigan - Section 1.2)
Attached to and made a part of that certain Purchase and Sale Agreement by
and between CMS OIL AND GAS COMPANY, as Seller, and QUICKSILVER RESOURCES
INC., as Purchaser, dated _______________, 2000.
The real property and all buildings, structures, fixtures and personal
property (unless specifically included in the Assets or the Terra
Assets) located thereon and all appurtenances thereto, which real
property is situated in the Township of Garfield, County of Grand
Traverse, State of Michigan, and described as:
The North one-half (N/2) of the Southwest one-quarter (SW/4) of
the Northeast one-quarter (NE/4), except the North 20 feet
thereof, Section 23, Township 27 North, Range 11 West, Garfield
Township, Grand Traverse County, Michigan, and commonly known as
1475 Terra Road, Traverse City, Michigan.
91
ATTACHMENT B3
(Retained Wells, Units, Leases, Pipelines and Facilities)
TO BE COMPLETED AT A LATER DATE
92
ATTACHMENT C
(Qualifying Wells)
TO BE COMPLETED AT A LATER DATE
93
ATTACHMENT D
(Retained Liabilities - Section 2.)
TO BE COMPLETED AT A LATER DATE
94
ATTACHMENT E
[Over and Under Production (current estimated amounts0 - Section 3.5]
TO BE COMPLETED AT A LATER DATE
95
ATTACHMENT F
(Purchase Price Allocation - Section 3.6)
TO BE COMPLETED AT A LATER DATE
96
ATTACHMENT G
(CMS Disclosure Schedule - Article IV)
TO BE COMPLETED AT A LATER DATE
97
ATTACHMENT H
(CMS and Terra Bonds)
TO BE COMPLETED AT A LATER DATE
98
ATTACHMENT I
(Terra Disclosure Schedule - Article VI)
TO BE COMPLETED AT A LATER DATE
99
ATTACHMENT J
(Terra Financial Statements - Section 6.5)
TO BE COMPLETED AT A LATER DATE
100
ATTACHMENT K
(CMS and Terra Insurance Coveragaes)
101
ATTACHMENT L
(Purchaser's Opinion of Counsel - Section 10.6)
TO BE COMPLETED AT A LATER DATE
102
ATTACHMENT M
(CMS Opinion of Counsel - Section 11.5)
TO BE COMPLETED AT A LATER DATE
103
ATTACHMENT N
(Environmental Disclosure - Section 12.1)
TO BE COMPLETED AT A LATER DATE
104
ATTACHMENT O
[Form Assignment and Conveyances of Subject Properties - Section 14.2(a)]
TO BE COMPLETED AT A LATER DATE
105
ATTACHMENT P
[Title Warranty Letter - Section 14.2.(b)]
TO BE COMPLETED AT A LATER DATE
106
ATTACHMENT Q
[Escrow Agreement - Section 14.2.(g)]
TO BE COMPLETED AT A LATER DATE
107
ATTACHMENT R
[Letter Agreement Regarding Disbursement to Third Parties
from Operated Assets after the Transfer Date - Section 14.2(n)]
TO BE COMPLETED AT A LATER DATE
108
ATTACHMENT S
[Pending Lawsuits, Actions and Proceedings - Section 15.3(d)]
(Disclosure Schedule)
Attached to and made a part of that certain Purchase and Sale Agreement by
and between CMS OIL AND GAS COMPANY, as Seller, and QUICKSILVER RESOURCES
INC., as Purchaser, dated _______________, 2000.
1. CMS NOMECO Oil & Gas Co. v Antrim Energy, Inc.
------------------------ -------------------
Collection matter under a 1996 gas contract. Case No. 97-6146-CK
in the 46th Judicial District, Lansing, Michigan
2. MacMillan and Englehart v CMS Oil and Gas Company
----------------------- -----------------------
Dispute over acreage computation for royalty purpose relating to
the Bushman Antrim Unit. Case No. 98-17881-CK in the 13th
Judicial Circuit, Grand Traverse County, Michigan
3. Markel Trust v CMS Oil and Gas Company, et al
------------ ------------------------------
Various claims, including claimed preferential right to purchase
on sale of various Antrim gas working interests to Fruehauf
Antrim Limited Partnership. Case No. 97-15902-CD in the 13th
Judicial Circuit, Grand Traverse County, Michigan
4. Marra v Yankee and Terra Energy, Ltd.
----- -----------------------------
Mineral ownership claim under producing unit. Case No.
99-003695-CH in the 26th Judicial Circuit, Montmorency County,
Michigan
5. Hershberger v Terra Energy Ltd.
----------- -----------------
Patent claim regarding method and apparatus for controlling
artificial list of liquids from a gas or oil well
6. Estate of Ernest G. Rea v Terra Energy Ltd. and W. Thomas Rea, et
----------------------- ----------------- -----------------
al v Terra Energy Ltd.
-- -----------------
Companion cases regarding various royalty and surface claims in
the X-Rea Antrim Unit. Case No. 99-005322-NZ and Case No. 99-
003652-NZ in the 26th Judicial Circuit, Montmorency County,
Michigan
109
7. Theodore Paul Schroeder, et al v Terra Energy Ltd.
------------------------------ -----------------
Post production cost and duty to market claims relating to
Schroeder Antrim Unit. Case No. 93-5626-CM(D) in the 46th
Judicial Circuit, Otsego County, Michigan
8. SHR Limited Partnership v Terra Energy Ltd.
----------------------- -----------------
Computation of post-production costs in Shell Dover and Corwith
Dover Antrim Units. Case No. 99-18653-CK in the 13th Judicial
Circuit, Grand Traverse County, Michigan
9. Terra Energy Ltd. v Starr Energy, Inc., et al, White Pine
----------------- ------------------------- ----------
Enterprises, L.L.C. v Terra Energy Ltd. and Terra Energy Ltd. v
------------------- ----------------- -----------------
White Pine Enterprises and Starr Energy, Inc.
---------------------------------------------
Collection of development costs and claim of breach of contract
relating to operator duties in North and South Kitchen Farms
Unites. Case No. 98-7490-CK and Case No. 99-7582-CK in North and
South Kitchen Farms projects
10. State of Michigan and Michigan Department of Natural Resources v
--------------------------------------------------------------
Terra Energy Ltd., et al
------------------------
Post-production cost and competition of royalties claims. Case
No. 97-16813-CM, Michigan Court of Claims, Ingham County,
Michigan
11. Terra Energy Ltd. v State of Michigan, et al
----------------- ------------------------
Interpleader action on mineral ownership dispute in Vienna 1 and
2, South Rust Never Sleeps and Black Antrim Unites. Case No.
96-003413(K)CZ in 26th Judicial Circuit, Montmorency, County,
Michigan
12. Various Environmental Claims
(a) State Charlton "A" #1-28 well and CPF
(b) Broadwell Hulsapple 1-11
(c) Griner 1-21 (restricted closure)
(d) Houch 2-17 (restricted closure)
(e) Rebman 2-16
(f) Rebman 3-16
(g) Reckow Howes 1-26 (restricted closure)
(h) Salon 1-9C (may be delisted)
(i) Skulina State Cleon 1-20 (may be delisted)
110
(j) Skulina State Cleon 2-20 (may be delisted)
(k) State Kalkaska D1-13
(l) State Kalkaska 1-21
(m State Wexford 2-6
(n State Wexford 1-17
(o) State Wesford 1-18 (no interest-sold to OIL)
13. Terra Single Business Tax Claims
Issue of whether Michigan Severance Tax law exempts amounts taxed
for Severance Tax purposes from other state and local taxes, such
as SBT. Related to 1990-1994 Terra returns
14. Gage Plant Gas Imbalance
Note: Any pending regulatory matters, including public hearings
before the Michigan Department of Environmental Quality, Michigan
Department of Natural Resources or Michigan Public Service Commission
are not included on this Disclosure Schedule.
111
ATTACHMENT T
112